Order Code RL32191
CRS Report for Congress
Received through the CRS Web
Prescription Drug Importation
and Internet Sales:
A Legal Overview
Updated October 4, 2004
Jody Feder
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress
Prescription Drug Importation and Internet Sales:
A Legal Overview
Summary
As prescription drug prices have escalated in recent years, so too has consumer
interest in purchasing less costly medications abroad. Meanwhile, in July, 2003, the
House of Representatives passed H.R. 2427, a bill that would allow wholesalers,
pharmacists, and consumers to import certain prescription drugs from 25 different
countries, including Canada, where drug prices are often lower than in the United
States. Although H.R. 2427 passed the House, the provisions allowing drug
importation faced opposition in the Senate and were not included in the conference
agreement on Medicare prescription drug benefits. Instead, the final Medicare bill,
H.R. 1, modified a provision of existing law that authorizes the Food and Drug
Administration (FDA) to allow the importation of prescription drugs if the Secretary
of Health and Human Services certifies that implementing such a program is safe and
reduces costs, a determination that no Secretary has made in the years since a similar
certification requirement was established in 2000.
Despite the compromise reached in the final Medicare bill, the debate about
drug importation continues. On the one hand, some policymakers remain opposed to
allowing prescription drugs to be imported from foreign countries, arguing that the
FDA cannot guarantee the safety of such drugs. On the other hand, importation
proponents, who claim that importation would result in significantly lower prices for
U.S. consumers, say that safety concerns are overblown and would recede if
additional precautions were implemented.
Just as the FDA has expressed concerns about the safety of imported drugs,
federal regulators have become increasingly worried about the risks posed by some
online pharmacies and Internet drug sales. Indeed, the regulation of prescription drug
importation and the oversight of online pharmacies often overlap because many
consumers use online pharmacies to purchase imported drugs. Regardless of whether
or not drugs purchased online are imported, the FDA is worried about the safety of
such medications because of its concern that a small number of online doctors and
pharmacies are exploiting regulatory gaps to prescribe and dispense illegal, addictive,
or unsafe drugs.
In response to concerns about prescription drug imports and Internet sales,
several congressional lawmakers have introduced the following bills: H.R. 616, H.R.
780, H.R. 847, H.R. 1733, H.R. 2497, H.R. 2652, H.R. 2717, H.R. 2769, H.R. 3710,
H.R. 3870, H.R. 3880, H.R. 4512, H.R. 4612, H.R. 4790, S. 1781, S. 1974, S. 1992,
S. 2137, S. 2307, S. 2328, S. 2464, S. 2487, and S. 2493. Currently, the following
federal and state agencies are involved in regulating aspects of prescription drug
importation and Internet sales: the Food and Drug Administration, the U.S. Customs
and Border Protection (CBP), the Drug Enforcement Agency (DEA), state boards of
pharmacy, and state medical boards. Although this report is intended to focus on
legal aspects of prescription drug importation and Internet sales, both legal and policy
issues are addressed because they are closely linked. For a more complete analysis
of policy issues, see CRS Report RL32511, Importing Prescription Drugs:
Objectives, Options, and Outlook, by Susan Thaul and Donna U. Vogt.
Contents
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Prescription Drug Importation: Legal Regulation . . . . . . . . . . . . . . . . . . . . . . . 4
Importation of U.S.-Manufactured Prescription Drugs . . . . . . . . . . . . . . . . . 5
Importation of Foreign Versions of Prescription Drugs . . . . . . . . . . . . . . . . 6
Penalties Under the FFDCA and Other Federal Laws . . . . . . . . . . . . . . . . . . 7
The FDA’s Personal Importation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
State and Local Importation of Prescription Drugs:
Violation of Federal Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Businesses That Facilitate Importation of Prescription Drugs . . . . . . . . . . . 14
Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
State Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
International Trade Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
General Agreement on Tariffs and Trade . . . . . . . . . . . . . . . . . . . . . . 24
WTO Agreement on Technical Barriers to Trade . . . . . . . . . . . . . . . . 26
General Agreement on Trade in Services . . . . . . . . . . . . . . . . . . . . . . 29
Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
III. Internet Pharmacies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Federal Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
State Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
IV. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Prescription Drug Importation and
Internet Sales: A Legal Overview
This report explores the legal issues raised by prescription drug importation and
Internet sales. Although this report is intended to focus on legal analysis, both legal
and policy issues are addressed because they are closely linked. For a more complete
analysis of policy issues, see CRS Report RL32511, Importing Prescription Drugs:
Objectives, Options, and Outlook, by Susan Thaul and Donna U. Vogt.
I. Introduction
In general, there are two types of prescription drug imports: commercial imports
by wholesalers and pharmacists, and personal imports by consumers. As prescription
drug prices have escalated in recent years, so too has consumer interest in purchasing
less costly medications abroad by means of either commercial or personal imports.
Meanwhile, congressional legislators have been exploring a variety of legislative
solutions to the problems posed by rising drug costs. In July, 2003, the House of
Representatives passed H.R. 2427, a bill that would allow wholesalers, pharmacists,
and consumers to import prescription drugs that are approved by the Food and Drug
Administration (FDA) and that are manufactured in FDA-approved plants. Under the
bill, drugs could be imported from 25 different countries, including Canada, where
drug prices are often lower than in the United States. In addition, the bill would have
instituted anti-counterfeit technologies. Despite opposition from the leadership, H.R.
2427 easily passed the House, but the provisions allowing drug importation faced
opposition in the Senate and were not included in the conference agreement on
Medicare prescription drug benefits. Instead, the final Medicare bill, H.R. 1, modified
a provision of existing law that authorizes the FDA to allow the importation of
prescription drugs if the Secretary of Health and Human Services (HHS) certifies that
implementing such a program is safe and reduces costs, a determination that no
Secretary has made in the years since a similar certification requirement was
established in 2000.1
Despite the fact that the final Medicare bill did not change the law with respect
to the prohibition against importing prescription drugs from Canada and other foreign
countries, the debate about drug importation continues. On the one hand, some
policymakers remain opposed to allowing prescription drugs to be imported from
foreign countries. Worried about the risk to consumers, these critics argue that the
1 Pub. L. No. 108-173 [hereinafter Medicare Act]. The original certification provision was
contained in the Medicine Equity and Drug Safety (MEDS) Act. Pub. L. No. 106-387. The
new Medicare Act also requires HHS to conduct a study and issue a report on importing
prescription drugs.
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FDA cannot guarantee the safety of such drugs,2 which they contend are more
susceptible to being mishandled, mislabeled, unapproved, or counterfeited than drugs
sold domestically. In addition, drug manufacturers and other opponents argue that
allowing the importation of prescription drugs would stifle investment in the research
and development of new drugs.3 On the other hand, importation proponents, who
claim that importation would result in an increased supply of prescription drugs that
could result in significantly lower prices for U.S. consumers, say that safety concerns
are overblown and would recede if additional precautions were implemented.
Arguing that drug manufacturers are concerned only about their profits, proponents
of importation contend that U.S. consumers should not subsidize the cost of research
and development and that consumers in other countries should share the burden.4
Linked to the issue of prescription drug importation is a debate about drug costs.
While some comparisons of U.S. and Canadian drug prices conclude that U.S. prices
are higher than their Canadian counterparts, other studies do not find such
discrepancies.5 In part, studies may vary depending on which drugs are selected for
comparison and whether or not U.S. generic drugs, which tend to be cheaper than
Canadian brand-name drugs, are considered.
In addition, there is an unresolved debate about whether allowing drug imports
would affect drug prices, with supporters arguing that drug prices would drop due to
competition if imports were allowed and opponents arguing that increased demand
for imported drugs and moves by manufacturers to limit supplies of cheaper drugs
would cause prices to rise both in the U.S. and abroad and would increase the risk of
counterfeit drugs being introduced into the system.6 Indeed, according to a recent
study by the Congressional Budget Office (CBO), “the reduction in drug spending
from importation would be small,” in part because of new costs associated with
ensuring the safety of imported drugs and because of the likelihood that
manufacturers would alter drug formulations or reduce foreign supplies.7
Furthermore, there are questions about how much it would cost to implement a safe
drug importation program. The FDA estimates that such a program would cost at
2 The Canadian government has also stated that it cannot guarantee the safety of drugs
exported to the U.S. from Canada. Marc Kaufman, Canadian Drug Position Misinterpreted,
WASH. POST, May 26, 2003, at A11.
3 Marc Kaufman, FDA’s Authority Tested Over Drug Imports, WASH. POST, Nov. 9, 2003,
at A11.
4 Id.
5 For a discussion of the debate about costs, see CRS Report RL32511, Importing
Prescription Drugs: Objectives, Options, and Outlook, by Susan Thaul and Donna U. Vogt.
6 Gardiner Harris, The Nation: Prescriptions Filled; If Americans Want to Pay Less for
Drugs, They Will, N.Y. TIMES, Nov. 16, 2003, § 4, at 4.
7 Congressional Budget Office, Would Prescription Drug Importation Reduce U.S. Drug
Spending?, Economic and Budget Issue Brief, April 29, 2004.
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least $100 million but that the figure could rise as high as several hundred million
dollars, especially if there is an increase in the volume of imported drugs.8
Just as the FDA has expressed concerns about the safety of imported drugs,
federal regulators have become increasingly worried about the risks posed by some
online pharmacies and prescription drug sales over the Internet.9 Indeed, the
regulation of prescription drug importation and the oversight of online pharmacies
often overlap because many consumers use online pharmacies to purchase imported
drugs. Regardless of whether or not drugs purchased online are imported, the FDA
is worried about the safety and quality of such medications because of its concern
about the lack of adequate physician supervision, the prospects for tampering with
or counterfeiting such drugs, and the possibility that such drugs may be handled,
dispensed, packaged, or shipped incorrectly.10
In response to concerns about prescription drug imports and Internet sales, a
number of congressional legislators have introduced bills that would make changes
to existing law in these areas. In addition to H.R. 2427, multiple other bills –
including H.R. 616, H.R. 780, H.R. 847, H.R. 1733, H.R. 2497, H.R. 2717, H.R.
2769, H.R. 3710, H.R. 4512, H.R. 4790, S. 1781, S. 1974, S. 1992, S. 2137, S. 2307,
S. 2328, S. 2487, and S. 2493 – would amend current importation policy, and at least
nine bills – H.R. 616, H.R. 2652, H.R. 2717, H.R. 3870, H.R. 3880, H.R. 4612, H.R.
4790, S. 2464, and S. 2493 – would make changes to the law governing how drugs
are sold online.11 The Senate, however, does not appear likely to vote on prescription
drug importation legislation in the near future.12 In addition to the above bills, the
House-passed version of the FY2005 appropriations bill that funds the FDA prohibits
the agency from spending any of its appropriation to prevent drug importation,
although the Senate bill contains no such provision.
Current regulation of prescription drug importation and Internet sales consists
of a patchwork of federal and state laws in an array of areas.13 At the federal level,
8 Inside Washington Publishers, $58 Million for Canadian Rx Importation Based on
Outdated Estimate, FDA WEEK, March 19, 2004.
9 Some of these concerns are reflected in a recent report by the Government Accountability
Office (GAO; formerly the General Accounting Office). GAO Report GAO-04-820, Internet
Pharmacies: Some Pose Safety Risks for Consumers.
10 FOOD AND DRUG ADMINISTRATION, Buying Medicines and Medical Products Online,
[http://www.fda.gov/oc/buyonline/default.htm].
11 The sponsors of S. 2328 have also indicated that they intend to add to the bill provisions
that would address the safety of prescription drugs sold by domestic Internet pharmacies.
Press Release, Sen. Olympia Snowe, Snowe Joins AARP in Pressing Members of the Senate
to Take Up Bipartisan, Prescription Drug Importation Legislation (July 14, 2004).
12 Inside Washington Publishers, Frist Scuttles Idea of Vote on Drug Import Bill, Says Too
Little Time, FDA WEEK, Sept. 17, 2004.
13 For other information on prescription drug importation and Internet sales, see CRS Report
RL32511, Importing Prescription Drugs: Objectives, Options, and Outlook, by Susan Thaul
and Donna U. Vogt; CRS Report RL32271, Importation of Prescription Drugs Provisions
(continued...)
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the Food and Drug Administration (FDA) regulates prescription drugs under the
Federal Food, Drug, and Cosmetic Act (FFDCA), which governs, among other
things, the safety and efficacy of prescription medications, including the approval,
manufacturing, and distribution of such drugs.14 It is the FFDCA that prohibits the
importation — sometimes referred to as “reimportation”15 — of certain prescription
drugs by anyone other than the manufacturer and that requires that prescription drugs
may be dispensed only with a valid prescription.16 Meanwhile, U.S. Customs and
Border Protection (CBP) has the initial responsibility for examining imported goods
at the nation’s borders and for detaining any FDA-regulated products that appear to
pose a health risk. In addition, the Drug Enforcement Agency (DEA) administers the
Controlled Substances Act, which is a federal statute that establishes criminal and
civil sanctions for the unlawful possession, manufacturing, or distribution of certain
addictive or dangerous substances, including certain prescription drugs that share
these properties, such as narcotics and opiates.17 At the state level, state boards of
pharmacy regulate pharmacy practice, and state medical boards oversee the practice
of medicine. Thus, some of the laws that govern online pharmacies and doctors vary
from state to state.
II. Prescription Drug Importation: Legal Regulation
At the federal level, the FDA regulates prescription drugs under the Federal
Food, Drug, and Cosmetic Act (FFDCA), which governs, among other things, the
safety and efficacy of prescription medications, including the approval,
manufacturing, and distribution of such drugs.18 Although many states also have their
own laws that regulate drug safety, the FDA maintains primary responsibility for the
premarket approval of prescription drugs, while the DEA and CBP have somewhat
more limited regulatory authority over such drugs.
The FFDCA contains several provisions that apply to prescription drug imports.
First, the statute contains an outright prohibition that forbids anyone other than the
U.S. manufacturer from importing prescription drugs. This prohibition affects only
drugs that originally are made in the U.S. Second, the FFDCA contains a number of
13 (...continued)
in P.L. 108-173, the Medicare Prescription Drug, Improvement, and Modernization Act of
2003, by Susan Thaul and Donna U. Vogt; CRS Report RL32568, Senate Prescription Drug
Importation Legislation: A Side-by-Side Comparison of Current Law, S. 2307, S. 2328, and
S. 2493, by Susan Thaul and Donna U. Vogt; and GAO Report GAO-01-69, Internet
Pharmacies: Adding Disclosure Requirements Would Aid State and Federal Oversight.
14 21 U.S.C. § 301 et seq.
15 “Reimportation” is a term that is commonly used to describe importation. The term
“importation” is used throughout this report.
16 21 U.S.C. § 353(b).
17 Id. at § 801 et seq. For more information on the Controlled Substances Act, see CRS
Report 97-141A, Drug Smuggling, Drug Dealing and Drug Abuse: Background and
Overview of the Sanctions Under the Federal Controlled Substances Act and Related
Statutes, by Charles Doyle.
18 21 U.S.C. § 301 et seq.
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other provisions relating to drug approvals and labeling that make it nearly
impossible for prescription drugs made for foreign markets to comply with the
extensive statutory requirements, in part because the FDA considers any drugs not
made on an FDA-inspected production line to be unapproved and therefore illegal.
These provisions generally affect foreign versions of drugs that are approved for
domestic sale.
Importation of both U.S.-manufactured prescription drugs and unapproved
foreign versions of U.S.-approved prescription drugs are discussed in this section, as
are the penalties under the FFDCA, the FDA’s personal importation policy, state
plans to import prescription drugs, and businesses that facilitate the importation of
prescription drugs. In addition, this section contains a discussion of other legal areas
that may affect prescription drug importation, including antitrust law, trade law, and
patent law.
Importation of U.S.-Manufactured Prescription Drugs
Currently, the FFDCA prohibits anyone other than the U.S. manufacturer of a
prescription drug from importing that drug into the United States.19 Thus, it is
technically a violation of the statute for individual consumers or online pharmacies
to import a prescription drug back into the country, even though the drug was, prior
to export, originally manufactured in the U.S. and even if the drug otherwise
complies with the FFDCA.20 Although critics of this law argue that there is no
rational justification for forbidding the importation of a drug that is theoretically
identical to its counterpart sold in the U.S., the FDA contends that the agency can no
longer guarantee the safety of a prescription drug once it has left the country and the
agency’s regulatory control. According to the agency, the FDA “cannot provide
adequate assurance to the American public that the drug products delivered to
consumers in the United States from foreign countries are the same products
approved by the FDA.”21
In response to concerns about the rising costs of prescription drugs, however,
Congress adopted importation amendments to the FFDCA in 2000. Under the
Medicine Equity and Drug Safety (MEDS) Act,22 the FDA was authorized to allow
pharmacists and wholesalers to import prescription drugs from foreign countries if
certain safety precautions were followed.23 The act, however, stipulated that the
importation provision would not become effective until and unless the Secretary of
19 Id. at § 381(d)(1). The Secretary, however, is authorized to allow the importation of any
drugs that are required for emergency medical care. Id. at § 381(d)(2).
20 Under the FDA’s personal importation policy, however, the FDA currently does not
enforce this prohibition against individuals who import a limited supply of prescription
drugs for personal use. See infra notes 50-57 and accompanying text.
21 Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food
and Drug Administration, to Robert P. Lombardi, Esq., The Kullman Firm 1 (Feb. 12, 2003),
[http://www.fda.gov/ora/import/kullman.pdf] [hereinafter Lombardi Letter].
22 Pub. L. No. 106-387.
23 21 U.S.C. § 384.
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HHS determined that the implementation of the provision would “pose no additional
risk to the public’s health and safety; and [would] result in a significant reduction in
the cost of covered products to the American consumer.”24 Citing safety concerns,
both the current and the former Secretaries declined to implement this provision.
In the recently enacted Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (hereinafter referred to as the Medicare Act),25 Congress
once again revisited the issue of prescription drug importation. Like the MEDS Act
it superseded, the Medicare legislation directs the FDA to allow pharmacists and
wholesalers to import prescription drugs if certain safety precautions are followed.
Unlike the MEDS Act, which covered prescription drugs from a specified group of
foreign countries, the Medicare Act allows imports from Canada only.26 In addition,
the Medicare Act, unlike the MEDS Act, also authorizes the FDA to allow, by
regulatory waiver, individuals to import prescription drugs for personal use under
certain circumstances.27 Despite these new importation provisions, the Medicare Act,
like the MEDS Act, stipulates that the importation provisions will not become
effective until and unless the Secretary certifies that the implementation of the
provision would “pose no additional risk to the public’s health and safety; and
[would] result in a significant reduction in the cost of covered products to the
American consumer.”28As noted above, the Secretary of HHS has thus far declined
to provide such certification. Absent such certification, the ban on the importation
of prescription drugs remains in effect.
Importation of Foreign Versions of Prescription Drugs
Even if the FFDCA did not contain an explicit prohibition against drug
importation, the FDA maintains that consumer imports of prescription drugs from
foreign countries would almost certainly violate other provisions of the act.29 For
example, such drugs are likely to be unapproved,30 mislabeled,31 or improperly
dispensed.32 According to the FDA:
The reason that Canadian or other foreign versions of U.S.-approved drugs are
generally considered unapproved in the U.S. is that FDA approvals are
manufacturer-specific, product-specific, and include many requirements relating
to the product, such as manufacturing location, formulation, source and
24 Id. at § 384(l).
25 Medicare Act, supra note 1.
26 Id.
27 Id. This legislation, which is similar to the FDA’s personal importation policy, is
discussed in more detail in a separate section below.
28 Id.
29 Lombardi Letter, supra note 21, at 2.
30 21 U.S.C. § 355.
31 Id. at § 353(b)(2).
32 Id. at § 353(b)(1).
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specifications of active ingredients, processing methods, manufacturing controls,
container/closure system, and appearance. . . . Moreover, even if the
manufacturer has FDA approval for a drug, the version produced for foreign
markets usually does not meet all of the requirements of the U.S. approval, and
thus it is considered to be unapproved. Virtually all shipments of prescription
drugs imported from a Canadian pharmacy will run afoul of the Act, although it
is a theoretical possibility that an occasional shipment will not do so. Put
differently, in order to ensure compliance with the Act when they are involved
in shipping prescription drugs to consumers in the U.S., businesses and
individuals must ensure, among other things, that they only sell FDA-approved
drugs that are made outside of the U.S. and that comply with the FDA approval
in all respects.33
In addition to complying with the requirements regarding FDA approvals,
imported drugs must also meet FDA requirements regarding labeling and dispensing.
For example, mislabeling a drug is a violation of the FFDCA, as is the act of
introducing or receiving a mislabeled drug in interstate commerce.34 In order to be
properly labeled, prescription drugs must be labeled in accordance with the FDA’s
extensive labeling requirements.35 Furthermore, the FFDCA requires that prescription
drugs may be dispensed only with a valid prescription.36 Therefore, it is a violation
of the act to import prescription drugs without a legitimate U.S. prescription.
According to the FDA, a recent inspection of prescription drug shipments by
CBP found that 1,728 of 1,982 drug shipments from foreign countries violated the
FFDCA because they contained “unapproved drugs” that could pose clear safety
problems.37 Although the reason for the violation varied depending on the shipment,
the FDA and CBP found shipments of drugs that, among other things, had never been
approved by the FDA, were inadequately labeled (e.g., lacked instructions or were
labeled in a foreign language), had been withdrawn from the U.S. market due to
safety concerns, could cause dangerous interactions, required monitoring by a doctor,
or were controlled substances.38
Penalties Under the FFDCA and Other Federal Laws
If a business or consumer violates the FFDCA by importing unapproved or
misbranded prescription drugs, there are a number of criminal and civil penalties that
may apply. As set forth in the act, penalties, which vary depending on the offense, are
as follows: (1) violations of the act’s general prohibitions are a misdemeanor offense
33 Lombardi Letter, supra note 21, at 3.
34 21 U.S.C. §§ 331 (a)-(c), 353(b)(2).
35 21 C.F.R. §201.100(c)(2).
36 21 U.S.C. § 353(b)(1).
37 Press Release, Food and Drug Administration, Recent FDA/U.S. Customs Import Blitz
Exams Continue to Reveal Potentially Dangerous Illegally Imported Drug Shipments (Jan.
27, 2004), [http://www.fda.gov/bbs/topics/NEWS/2004/NEW01011.html].
38 Id.
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punishable by up to a year in prison or a fine of up to $1,000, or both;39 (2) a
violation that occurs after a prior conviction for violating the act or that is committed
with the intent to defraud or mislead is a felony offense punishable by up to three
years of imprisonment or up to a $10,000 fine, or both;40 and (3) if a business or
consumer knowingly violates the importation provision, then the violation is a felony
offense punishable by up to 10 years in prison or up to $250,000 in fines.41 Despite
these designated penalties, individuals and corporations that violate the act may face
monetary fines far greater than those specified in the FFDCA because those sanctions
are superceded by general fines set forth in the Sentencing Reform Act of 1984,
which applies across the board to all federal crimes. That statute raised the limit on
the maximum penalties that apply to federal crimes. As a result, misdemeanor
violations of the FFDCA are punishable by a fine of up to $100,000 for individuals
and up to $200,000 for organizations, and felony violations of the act are punishable
by up to $250,000 for individuals and up to $500,000 for corporations.42 In addition,
federal courts are authorized to issue injunctions in order to enjoin violations of the
act,43 and any drug that is adulterated or misbranded is subject to seizure under the
act.44
It is important to note that “[t]hose who aid and abet a criminal violation of the
act, or conspire to violate the act, can also be found criminally liable.”45 Federal
criminal law generally makes it a separate crime to aid or abet any criminal offense
against the United States or to conspire to commit a criminal offense against the
United States,46 so illegal importers could potentially be charged with these offenses
as well as other general federal crimes, such as mail or wire fraud or making false
statements. In addition, the FFDCA explicitly forbids certain acts, as well as the
causing of such prohibited acts.47 Thus, businesses that facilitate the importation of
unapproved prescription drugs or U.S.-manufactured prescription drugs may be liable
if they are deemed to be “causing” violations of the act. In addition to penalties under
the FFDCA and other federal criminal statutes, individuals or businesses that illegally
import prescription drugs that are also controlled substances may be subject to
penalties under the Controlled Substances Act.48
Despite the range of penalties that FDA has available to punish those who
import prescription drugs in violation of the act, the agency has clarified that its
39 21 U.S.C. § 333(a)(1). In addition, misdemeanor violations of the act are strict liability
offenses. United States v. Dotterweich, 320 U.S. 277, 284 (1943).
40 21 U.S.C. § 333(a)(2).
41 Id. at §§ 333(b)(1), 381(d)(1).
42 18 U.S.C. §§ 3559, 3571.
43 21 U.S.C. § 332.
44 Id. at § 334.
45 Lombardi Letter, supra note 21, at 1.
46 18 U.S.C. §§ 2, 371.
47 21 U.S.C. § 331.
48 See infra notes 174-76 and accompanying text.
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“highest enforcement priority would not be actions against consumers.”49 Indeed, the
FDA exercises its enforcement discretion leniently in this regard by allowing
consumers to import certain otherwise illegal prescription drugs under certain
circumstances. This enforcement policy, known as the personal importation policy,
is described in detail below.
The FDA’s Personal Importation Policy
Although importing unapproved prescription drugs is a violation of the FFDCA,
it is CBP, not FDA, that has the initial responsibility for examining imported goods
at the nation’s borders. Accordingly, CBP notifies the FDA if it has detected a mail
or baggage shipment of “an FDA-regulated article intended for commercial
distribution, an article that FDA has specifically requested be detained, or an FDA
regulated article that appears to represent a health fraud or an unknown risk to
health.”50 In order to assist agency personnel in determining when to allow or refuse
entry to imported drugs, the FDA developed its personal importation policy.
Under the FDA’s personal importation policy, the FDA exercises its
enforcement discretion to permit consumers to import otherwise illegal prescription
drugs for purposes of personal use. Recognizing that the agency’s limited
enforcement resources are best directed at commercial shipments of imported drugs
rather than personal imports, the FDA may, at its discretion, refrain from taking legal
action against illegally imported drugs under the following circumstances:
a) the intended use is unapproved and for a serious condition for which effective
treatment may not be available domestically either through commercial or
clinical means;
b) there is no known commercialization or promotion to persons residing in the
U.S. by those involved in the distribution of the product at issue;
c) the product is considered not to represent an unreasonable risk; and
d) the individual seeking to import the product affirms in writing that it is for the
patient’s own use (generally not more than three month supply) and provides the
name and address of the doctor licensed in the U.S. responsible for his or her
treatment with the product, or provides evidence that the product is for the
continuation of a treatment begun in a foreign country.51
49 Lombardi Letter, supra note 21, at 4.
50 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Coverage of
P e r s o n a l I m p o r t a t i o n s , R E G U L A T O R Y P R O C E D U R E S M A N U A L ,
[http://www.fda.gov/ora/compliance_ref/rpm_new2/ch9pers.html]. CBP estimates that
40,000 packages of prescription drugs arrive on a daily basis at New York’s John F.
Kennedy mail center, the nation’s busiest international mail facility. Inside Washington
Publishers, Customs Says 40,000 Drug Parcels Go Through JFK Facility Daily, FDA
WEEK, March 19, 2004.
51 Id. See also, OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION,
I m p o r t a t i o n o f P r e s c r i p t i o n M e d i c i n e s / D r u g s ,
[http://www.fda.gov/ora/import/traveler_alert.htm]; OFFICE OF REGULATORY AFFAIRS, FOOD
AND DRUG ADMINISTRATION, Information on Importation of Drugs (April 3, 1998),
[http://www.fda.gov/ora/import/pipinfo.htm]. Furthermore, Canadian law prohibits
(continued...)
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Ultimately, the personal importation policy is designed to set forth guidance for
agency personnel regarding the FDA’s enforcement priorities for imported drugs, but
it is not intended to grant a license to consumers to import unapproved prescription
drugs into the United States.52 Indeed, the FDA emphasizes that even if all of the
factors above are met, “the drugs remain illegal and FDA may decide that such drugs
should be refused entry or seized.”53 Furthermore, this policy does not apply to
commercial shipments of unapproved prescription drugs, nor is it intended to permit
the importation of foreign versions of drugs that are already approved in the United
States. Thus, it appears that personal importations of cheaper versions of prescription
drugs that are already available in the U.S. do not conform to the FDA’s personal
importation policy.54 Nevertheless, U.S. consumers continue to import drugs from
abroad, and one Canadian group claims that Canadian pharmacies supply two million
people in the U.S., or roughly one percent of the U.S. market for prescription drugs.55
Meanwhile, in the recent Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Congress authorized the FDA to allow individuals to
import prescription drugs for personal use under certain circumstances, provided that
the Secretary has certified that importation is safe and cost-effective.56 Specifically,
the act, subject to certification, requires the Secretary of HHS to allow individuals to
import prescription drugs from Canada if the drug:
(A) is imported from a licensed pharmacy for personal use by an individual, not
for resale, in quantities that do not exceed a 90-day supply;
(B) is accompanied by a copy of a valid prescription;
(C) is imported from Canada, from a seller registered with the Secretary;
(D) is a prescription drug approved by the Secretary . . .
(E) is in the form of a final finished dosage that was manufactured in [a registered]
establishment . . .
(F) is imported under such other conditions as the Secretary determines to be necessary
to ensure public safety.57
51 (...continued)
Canadian pharmacists from dispensing drugs unless the patient submits a prescription from
a Canadian doctor. Thus, U.S. consumers generally must secure prescriptions from both U.S.
and Canadian doctors in order to purchase drugs from Canadian pharmacies.
52 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Coverage of
P e r s o n a l I m p o r t a t i o n s , R E G U L A T O R Y P R O C E D U R E S M A N U A L ,
[http://www.fda.gov/ora/compliance_ref/rpm_new2/ch9pers.html].
53 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Importation of
Prescription Medicines/Drugs, [http://www.fda.gov/ora/import/traveler_alert.htm].
54 OFFICE OF REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION, Information on
Importation of Drugs (April 3, 1998), [http://www.fda.gov/ora/import/pipinfo.htm].
55 Inside Washington Publishers, Canadian Pharmacist to Drug Firms: Support Limited Rx
Imports, FDA WEEK, May 7, 2004.
56 Medicare Act, supra note 1, at § 1121.
57 Id.
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Although the new individual importation provisions in the Medicare Act appear
similar to the FDA’s personal importation policy, the legislation differs significantly
because it contains the certification requirement. The current Secretary of HHS,
however, has declined to provide such certification in the past, and it is unclear what
direction the agency will take in the future. Thus, the new individual importation
provisions do not appear to represent a codification of the FDA’s personal
importation policy.
State and Local Importation of Prescription Drugs:
Violation of Federal Law?
Just as individual consumers have sought to buy cheaper prescription drugs from
foreign sources, several state and local governments are currently considering plans
to import or facilitate the importation of prescription drugs in order to save
themselves or their residents money on medicines. For example, multiple states have
been exploring the prospect of drug importation, and several localities, including
Springfield, Massachusetts and Montgomery, Alabama, have already begun to import
drugs.58 Contending that carefully structured state programs will provide a sufficient
degree of safety, states argue that they have a duty to explore innovative methods for
providing more affordable prescription drugs to their residents, even at the risk of
violating federal law.
Each state and local importation plan varies somewhat in the details.
Springfield, for example, has been facilitating the purchase of Canadian drugs as part
of a plan to provide cheaper medications to city employees, and the city estimates
that it has saved it least $2.5 million in the first year of the program.59 Meanwhile,
Minnesota and Wisconsin have established websites that offer information to state
residents regarding Canadian pharmacies that the states have inspected and
determined to be reliable sources for prescription drugs. Neither state, however,
imports drugs directly or allows consumers to order through its website.60 In addition,
Rhode Island legislators recently passed a new law that would allow the state to
license Canadian pharmacies.61 Many other states and localities have considered
and/or implemented importation plans of their own.62
58 Pam Belluck, Boldly Crossing the Line for Cheaper Drugs, N. Y. TIMES, Dec. 11, 2003,
at A38.
59 Ceci Connolly, Drug Reimportation Plan Saves City $2.5 Million, WASH. POST, July 15,
2004.
60 Marc Kaufman, FDA, States at Odds Over Drugs, WASH. POST, Feb. 22, 2004, at A11.
61 Inside Washington Publishers, Rhode Island is First State to Pass Canadian Drug Import
Law, FDA WEEK, July 9, 2004. The FDA has warned Rhode Island that the legislation may
be preempted by federal law. Letter from William K. Hubbard, Associate Commissioner for
Policy and Planning, Food and Drug Administration, to Governor Donald L. Carcieri (July
1, 2004), [http://www.fda.gov/oc/opacom/hottopics/importdrugs/carcieri.pdf]. For a
discussion of the preemption doctrine, see infra notes 71-72 and accompanying text.
62 For example, California, Illinois, Iowa, Minnesota, New Hampshire, North Dakota, Rhode
Island, Vermont, and Wisconsin are among the states that have considered and/or
(continued...)
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In addition, several states, including Vermont, have petitioned the FDA in hope
that the agency would, as it has done with regard to personal drug importation,
exercise its enforcement discretion and allow states to establish prescription drug
importation pilot plans.63 The new Medicare bill authorizes the FDA to provide
waivers for individual importation, and some lawmakers are arguing that the
individual importation waiver authority extends to state importation plans because
such plans are intended to provide prescription drugs to individual state residents.
The FDA, however, notes that the waiver provisions in the Medicare bill become
effective only upon certification by the Secretary that drug importation is safe and
reduces costs.64 Nevertheless, Vermont, whose petition for a pilot program was
rejected by the FDA, has recently sued the agency, claiming that the FDA’s failure
to implement regulations that authorize waivers and subsequent denial of Vermont’s
petition violate the Administrative Procedure Act. The Vermont lawsuit also claims
that the importation provisions in the new Medicare legislation constitute an
unconstitutional delegation of legislative authority to the Secretary of HHS.65 The
government has indicated that it intends to fight the lawsuit.66
Despite the efforts of such state and local governments, the FDA continues to
maintain that importing unapproved prescription drugs is unsafe and illegal. Indeed,
FDA representatives have met with and sought to convince state officials to change
their minds about importing drugs in apparent violation of federal law. At the same
time, the agency has notified certain states of its legal position regarding drug
imports.67 For example, according to the FDA’s response to an inquiry from
California officials, “if an entity or person within the State of California (including
any state, county, or city program, any public pension, or any Indian Reservation)
62 (...continued)
implemented importation programs. For current information on state activities with regard
to prescription drug importation, see National Conference of State Legislators, 2004
P r e s c r i p t i o n D r u g L e g i s l a t i o n ( S e p t . 1 4 , 2 0 0 4 ) ,
[http://www.ncsl.org/programs/health/drugdisc04.htm]. According to the National
Conference of State Legislators, at least 60 state bills and resolutions currently address the
issue of prescription drug importation. Id.
63 Inside Washington Publishers, Vermont Wants FDA to Allow Drug Reimportation for
State Employees, FDA WEEK, Dec. 19, 2003. See also, Inside Washington Publishers, Sen.
Dorgan Pushes for Drug Import Pilot Program in North Dakota, FDA WEEK, April 2, 2004;
Letter from Lester M. Crawford, Acting Commissioner of Food and Drugs, Food and Drug
Administration, to Governor Rod R. Blagojevich, State of Illinois (June 3, 2004),
[http://www.fda.gov/oc/opacom/hottopics/importdrugs/GovB63.pdf].
64 Kelly Field, Battle Brewing Between Administration, Local Officials Over Drug
Importation Issue, CQ TODAY, Dec. 19, 2003.
65 Vermont v. Thompson (D. Vt. filed Aug. 19, 2004).
66 Press Release, Food and Drug Administration, Statement on Vermont’s Lawsuit on
I m p o r t i n g P r e s c r i p t i o n D r u g s f r o m C a n a d a ( A u g . 2 0 , 2 0 0 4 ) ,
[http://www.fda.gov/bbs/topics/news/2004/NEW01107.html].
67 Indeed, the FDA has issued a series of warning letters to states that have considered or
that have implemented prescription drug importation plans. These letters are posted on the
FDA’s website at [http://www.fda.gov/importeddrugs/].
CRS-13
were to import prescription drugs into the State of California from Canada [or any
other foreign country], it would violate FFDCA in virtually every instance.”68
The FDA provides several legal arguments for reaching its conclusion that state
and local drug importation is a violation of the FFDCA. First, the statute prohibits
anyone other than the manufacturer from importing drugs that were originally
manufactured in the United States. Second, even if an FDA-approved drug is
manufactured outside the U.S., the imported version of the drug will likely violate
statutory requirements regarding drug approvals, labeling, and dispensing.69 These
first two arguments are identical to the arguments that FDA has made when
explaining why the agency views business and consumer imports of prescription
drugs to be statutory violations.70 Therefore, the FDA considers virtually any imports
of prescription drugs, as well as virtually any act that causes such imports, to be
illegal, regardless of whether such imports are conducted by businesses, consumers,
or governmental entities.
In addition, the FDA contends that any effort by states to enact legislation
authorizing prescription drug imports would be preempted by federal law.71 Although
the FDA sets forth several legal arguments for its position, preemption of the act’s
importation provisions does not appear to have been tested in court, and there are
several instances in which other prescription drug provisions in the FFDCA have
been held not to preempt state law.72 Finally, the agency has warned some states that
they could be subject to lawsuits for injuries to consumers who relied on the state’s
endorsement when purchasing prescription drugs from Canada. For example, in a
letter to Minnesota state officials, the FDA warned of “the potential tort liability that
68 Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food
and Drug Administration, to Gregory Gonot, Deputy Attorney General, State of California
2 (Aug. 25, 2003), [http://www.fda.gov/opacom/gonot.html] [hereinafter California Letter].
69 Id. at 3.
70 See supra notes 19-38 and accompanying text.
71 California Letter, supra note 68, at 5-7. The preemption doctrine derives from the
Supremacy Clause of the Constitution, which establishes that the laws of the United States
“shall be the supreme law of the land; and the judges in every state shall be bound thereby,
any thing in the Constitution or laws of any State to the contrary notwithstanding.” U.S.
CONST. art. VI, cl. 2. In applying this constitutional mandate, courts have recognized both
express and implied forms of preemption, which are “compelled whether Congress’
command is explicitly stated in the statute’s language, or implicitly contained in its structure
and purpose.” Gade v. National Solid Wastes Management Association, 505 U.S. 88, 97
(1992) (quoting Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977)).
72 Many of these cases, however, deal with prescription drug labeling, not importation, and
state common law claims, not state statutory law. David R. Geiger and Mark D. Rosen,
Rationalizing Product Liability for Prescription Drugs: Implied Preemption, Federal
Common Law, and Other Paths to Uniform Pharmaceutical Safety Standards, 45 DEPAUL
L. REV. 395, 408 (1996). It is also important to note that the FFDCA expressly preempts
state law with regard to over-the-counter drugs and medical devices but not with regard to
prescription drugs. As a result, it is more difficult to predict the outcome of a preemption
challenge to state laws on prescription drugs. A detailed examination of the preemption
issue, however, is beyond the scope of this report.
CRS-14
a state could be subject to if a citizen purchases an unapproved, illegal drug on your
advice, and suffers an injury as a result.”73
Despite the FDA’s position regarding state and local imports of prescription
drugs, it appears that the agency is currently refraining from taking legal action
against state and local governments that are importing such drugs. Indeed, in its
warning letter to Minnesota, the agency notably refrained from asserting that the
state’s program violated the FFDCA and did not describe any potential enforcement
action that the FDA might take.74 Likewise, the FDA has indicated that it is unlikely
to sue the state of Illinois, which recently announced a plan to import drugs from
certain European countries, despite the agency’s earlier pronouncement that it would
refrain from suing states and localities as long as those entities imported drugs from
Canada and not from other countries.75 In addition, although “FDA and industry
officials say the agency has not ruled out possible future legal action,” “the agency
wants to first win its case against Rx Depot, giving FDA bargaining power for the
more difficult task of taking formal action against states and local governments.”76
In the Rx Depot case, which is discussed in detail in the following section, the FDA
is pursuing legal action against a private company that helps individual consumers
import prescription drugs.
Businesses That Facilitate Importation of Prescription Drugs
As noted above, the FDA is currently refraining from taking legal action against
both states and individual consumers who import prescription drugs in violation of
the FFDCA because the agency has instead chosen to focus its initial enforcement
effort on pursuing businesses that facilitate the importation of such drugs. Unlike
pharmacies, which receive orders from consumers and dispense drugs directly, some
businesses facilitate drug sales without dispensing drugs directly. Rather, these
companies, many of which are online, act as middlemen between consumers, who
73 Letter from William K. Hubbard, Associate Commissioner for Policy and Planning, Food
and Drug Administration to the Honorable Tim Pawlenty, Governor of Minnesota 3 (Feb.
23, 2004), [http://www.fda.gov/oc/opacom/hottopics/importdrugs/pawlenty022304.html].
In the Minnesota warning letter, the FDA explicitly noted that Minnesota’s own inspection
of some of the recommended Canadian pharmacies had revealed potential safety violations.
Id. at 1-3.
74 Id. One possible explanation for the FDA’s silence with respect to the legality of
Minnesota’s actions could be that it is unclear whether the state is “causing” the prohibited
importation activity in violation of the statute, in part because the state neither imports drugs
from Canada nor allows consumers to order directly through its website. On the other hand,
the Minnesota website does provide order forms, pricing information, and instructions on
how to submit an order to either of two recommended Canadian pharmacies, and such
actions may be enough to establish that Minnesota is facilitating illegal importation. See
[http://www.state.mn.us/cgi-bin/portal/mn/jsp/home.do?agency=Rx] to view Minnesota’s
website.
75 Inside Washington Publishers, FDA Signals Reluctance to Sue Illinois for Importing
Drugs, FDA WEEK, Aug. 20, 2004.
76 Inside Washington Publishers, FDA To Resolve Rx Depot Suit Before Taking on States,
FDA WEEK, Oct. 31, 2003.
CRS-15
provide medical and payment information, and foreign (typically Canadian)
pharmacies, which then ship drugs directly to consumers. The FDA is currently
pursuing legal action against one such business. That case is discussed in detail in
this section, while separate but related issues involving online pharmacies are
discussed in a separate section below.
In United States v. Rx Depot,77 the Department of Justice (DOJ), acting on
behalf of the FDA, filed suit against Rx Depot, a storefront operation that helps U.S.
consumers obtain prescription drugs from Canada.78 According to the suit, DOJ
contends that Rx Depot is violating two provisions of the FFDCA, namely the
provision prohibiting importation and the provision prohibiting the introduction into
interstate commerce of any drug that violates the act’s approval requirements.79
Although Rx Depot is not directly importing drugs, the company admits that it is
“engaged in the business of causing the shipment of U.S.-manufactured and
unapproved, foreign-manufactured prescription drugs from Canadian pharmacies to
U.S. citizens.”80
Rx Depot has countered that the FDA is not actually concerned about the safety
of imported drugs because the agency never tested the drugs it bought from Rx Depot
as part of a sting operation against the company.81 Similar complaints have been
voiced by other businesses that facilitate the importation of prescription drugs. Critics
of FDA’s importation stance also argue that it “fails to protect the public health
because it allows individuals to import drugs, while prohibiting ‘commercial’
operations that are in the best position to develop safeguards,”82 and allege that the
77 290 F. Supp. 2d 1238 (D. Okla. 2003) (order granting preliminary injunction).
78 DOJ initiated this lawsuit after Rx Depot failed to respond to the agency’s warning letter
and continued to facilitate the importation of prescription drugs and the importation of
unapproved drugs. See Letter from David J. Horowitz, Esq., Director, Office of Compliance,
Center for Drug Evaluation and Research, Food and Drug Administration, to Harry Lee
J o n e s , S t o r e M a n a g e r , R x D e p o t , I n c . , ( M a r c h 2 1 , 2 0 0 3 ) ,
[http://www.fda.gov/foi/warning_letters/g3888d.htm]. FDA has sent similar warning letters
to other businesses that facilitate the importation of prescription drugs. See, e.g., Letter from
David J. Horowitz, Esq., Director, Office of Compliance, Center for Drug Evaluation and
Research, Food and Drug Administration, to G. Anthony Howard, President, CanaRx
Services, Inc., (Sept. 16, 2003), [http://www.fda.gov/cder/warn/2003/RHoward.pdf].
CanaRx is the business that currently assists Springfield, Massachusetts in importing
prescription drugs. Press Release, Food and Drug Administration, CanaRx Illegally
S u p p l y i n g P r e s c r i p t i o n D r u g s ( N o v . 6 , 2 0 0 3 ) ,
[http://www.fda.gov/bbs/topics/NEWS/2003/NEW00973.html].
79 United States v. Rx Depot, 290 F. Supp. 2d 1238 (D. Okla. 2003) (order granting
preliminary injunction). See also, 21 U.S.C. §§ 331(d), 331(t), and 355.
80 RxDepot, 290 F. Supp. 2d at 1241.
81 Inside Washington Publishers, Rx Depot: FDA Alleged Safety Concerns With
Reimportation Are Bogus, FDA WEEK, Nov. 7, 2003.
82 Id..
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FDA’s importation policy may violate international trade agreements.83 Ultimately,
critics argue that the FDA’s policy protects the profits of drug manufacturers at the
expense of consumer pocketbooks.84
Despite these arguments, the district court held against Rx Depot during a
preliminary ruling in the case. Concluding that “Rx Depot’s importation of
prescription drugs clearly violates the law,” the district court issued a preliminary
injunction enjoining Rx Depot from facilitating the importation of prescription
drugs.85 While the court’s order is not actually a final order on the merits of the case,
it does indicate that DOJ has a substantial likelihood of prevailing in the lawsuit.
Indeed, the court appeared particularly concerned with the safety of imported drugs:
[U]napproved prescription drugs and drugs imported from foreign countries by
someone other than the U.S.-manufacturer do not have the same assurance of
safety and efficacy as drugs regulated by the Food and Drug Administration. . .
Because the drugs are not subject to FDA oversight and are not continuously
under the custody of a U.S. manufacturer or authorized distributor, their quality
is less predictable than drugs obtained in the United States. For instance, the
drugs may be contaminated, counterfeit, or contain erratic amounts of the active
ingredient or different excipients. Also, the drugs may have been held under
uncertain storage conditions, and therefore be outdated or subpotent.86
With regard to Rx Depot, the court specifically noted that drugs ordered through
the company were often dispensed in quantities greater than prescribed and did not
contain the required package inserts. Although the court acknowledged that the cost
of prescription drugs in the U.S. is high and that there are no known cases of an
individual who has suffered harm from drugs imported through Rx Depot, the court
nevertheless concluded that the FDA has legitimate safety concerns and that
Congress is in the best position to resolve the tension between prescription drug
safety and cost.87
As noted above, the district court’s decision to issue a preliminary injunction
against Rx Depot is not a final decision on the merits of the case. Meanwhile, as the
legal battle continues, many companies like Rx Depot remain in business, and an
increasing number of states and localities have begun to contemplate their own
importation programs. In response, several drug manufacturers have begun limiting
sales of their drugs to Canadian pharmacies in an effort to prevent the drugs from
being resold in the U.S. at cheaper prices. These actions have raised questions about
whether such behavior violates federal antitrust laws, a topic that is discussed in the
following section.
83 Inside Washington Publishers, CanaRx Says FDA’s Reimportation Policy Violates Trade
Agreements, FDA WEEK, Nov. 7, 2003.
84 Marc Kaufman, FDA’s Authority Tested Over Drug Imports, WASH. POST, Nov. 9, 2003,
at A11.
85 Rx Depot, 290 F. Supp. 2d 1238.
86 Id. at 1241-42.
87 Id. at 1241-42, 1245.
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Antitrust Laws88
As noted above, several major prescription drug manufacturers have responded
to the rise in the number of businesses and consumers that are importing cheaper
drugs into the U.S. by reducing the supply of such drugs to distributors and
pharmacies in Canada, where most of the imported drugs originate.89 Although some
manufacturers argue that restrictions on sales are designed to prevent drug shortages
in Canada, such moves may instead be intended to limit Canadian distributors and
pharmacies to selling prescription drugs to Canadian consumers only, rather than
selling excess supplies of prescription drugs to U.S. consumers at cheaper prices than
such consumers would pay for similar drugs in the U.S. As a result, several members
of Congress have questioned whether these drug manufacturers are violating federal
antitrust laws,90 and several bills introduced in the 108th Congress would prohibit
such sales tactics.91 In addition, at least one state has launched an investigation into
whether or not the drug manufacturer GlaxoSmithKline (GSK) has violated state
antitrust laws.92 This section discusses the potential federal and state antitrust issues
raised by the decision of certain drug manufacturers to limit the supply of drugs to
Canadian distributors and pharmacies.
Federal Antitrust Law.
Federal antitrust law is concerned with the competitiveness of markets
(competition), and not with the competitors — unless they have suffered an injury
as a result of an actionable wrong under the antitrust laws — or with the achievement
or implementation of specific programs or goals. It is not a given, therefore, that
existing federal antitrust laws could be successfully employed to challenge
pharmaceutical manufacturers whose actions appear to reduce the U.S. supply of
imported prescription drugs or to make it more difficult for Americans to purchase
prescription drugs from other countries such as Canada.
First, neither current antitrust statutes nor doctrine make unlawful the market-
oriented activities of individual entities, unless the entity is a monopolist.93 Section
88 This section was written by Janice E. Rubin, Legislative Attorney in the American Law
Division of CRS.
89 Following the example set by GlaxoSmithKline, Pfizer Inc., the world’s biggest drug
manufacturer, recently announced that the company was limiting sales of prescription drugs
to Canadian pharmacies that resold such drugs to U.S. consumers. Ceci Connolly, Pfizer
Cuts Supplies to Canadian Drugstores, WASH. POST, Feb. 19, 2004, at A10.
90 Inside Washington Publishers, Lawmakers Seek DOJ Anti-Trust Probe of Firms Limiting
Sales to Canada, FDA WEEK, Nov. 7, 2003.
91 See, e.g., H.R. 2497; S. 1992; S. 2328.
92 Inside Washington Publishers, Judge Wants More Info Before Deciding Motion to Compel
Against GSK, FDA WEEK, Nov. 21, 2003.
93 For a more detailed discussion of this issue, see CRS Report, Monopoly and
Monopolization — Fundamental But Related Concepts in U.S. Antitrust Law, by Janice E.
Rubin and Congressional Distribution Memorandum, Duty of a Monopolist to Deal, by
(continued...)
CRS-18
1 of the Sherman Act94 makes illegal “[e]very contract, combination ... or conspiracy,
in restraint of trade or commerce ....” That provision, by its terms, may only be
violated by multiple parties engaged in concerted, or joint action. Thus, it would not
currently be applicable to, for example, a drug manufacturer who, on his own, and
not in agreement with another drug manufacturer or other person, refuses to supply,
or reduces supplies to, a Canadian or other non-U.S. pharmacy.95
The Sherman Act [15 U.S.C. §§ 1-7] contains a ‘basic distinction between
concerted and independent action.’ The conduct of a single firm is governed by
§ 2 [of the Sherman Act, 15 U.S.C. § 2] alone and is unlawful only when it
threatens actual monopolization. It is not enough that a single firm appears to
‘restrain trade’ unreasonably, for even a vigorous competitor may leave that
impression. ... Section 1 of the Sherman Act [15 U.S.C. § 1], in contrast, reaches
unreasonable restraints of trade effected by a ‘contract, combination ... or
conspiracy’ between separate entities. It does not reach conduct that is ‘wholly
unilateral.’”96
Moreover, the Court long ago noted that
the [Sherman] act does not restrict the long recognized right of [a] trader or
manufacturer engaged in an entirely private business, freely to exercise his own
independent discretion as to parties with whom he will deal; and, of course, he
may announce in advance the circumstances under which he will refuse to sell.97
And recently, the U.S. Court of Appeals for the Federal Circuit added that the
fundamental, Colgate precept of seller choice set out above is not altered by the
applicability of either the patent or copyright law to the item(s) in question, unless
it is judicially determined that the patent or copyright in question was fraudulently
procured.98
Second, whether certain joint activity is unlawful and therefore violates the
antitrust statutes is not always susceptible of proof. The Supreme Court has indicated
several times that a formal contract may not be necessary to establish the collective
93 (...continued)
Janice E. Rubin.
94 15 U.S.C. §§ 1-7.
95 See, infra, the section of this report on “State Antitrust Law,” regarding the existence at
the state level of some unilateral restraint of trade provisions.
96 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-68 (1984) (ruling that
a parent corporation was not legally capable of conspiring with its own wholly owned
subsidiary, and so could not guilty of conspiracy) (citations and footnote omitted) (emphasis
added).
97 United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
98 In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322, 1326 (Fed.
Cir. 2000).
CRS-19
action required by section 1 if the unlawful agreement99 can be inferred from the
totality of surrounding circumstances.100
In 1984, in Monsanto Co. v. Spray-Rite Service Corp., the Court said:
The correct standard is that there must be evidence that tends to exclude the
possibility of independent action by the [parties]. That is, there must be direct or
circumstantial evidence that reasonably tends to prove that the [parties] had a
conscious commitment to a common scheme designed to achieve an unlawful
objective.101
“Conscious parallelism” is the term often given to uniform or synchronous
business behavior, which, while prima face evidence of concerted behavior, is not
proof of unlawful agreement.102 In an early case, for example, the Court held that the
circumstances surrounding imposition by eight motions picture distributors of nearly
identical restraints concerning the licensing of first-run “feature” films were
sufficient to create a valid inference that the distributors had acted in concert, in
violation of section 1 of the Sherman Act.
It is elementary that an unlawful conspiracy may be and often is formed
without simultaneous action or agreement on the part of the conspirators.
Acceptance by competitors, without previous agreement, of an invitation to
participate in a plan, the necessary consequence of which, if carried out, is
99 There are a small number of actions ( e.g., price fixing, market allocation, boycotts or
concerted refusals to deal) that the courts have designated as per se violations of section 1;
other actions are analyzed pursuant to the Rule of Reason (anticompetitive consequences
weighed against any procompetitive result), and only those found to unreasonably restrain
trade are considered unlawful violations of section 1.
100 “No formal agreement is necessary to constitute an unlawful conspiracy. ... The
essential combination or conspiracy in violation of the Sherman Act may be found in a
course of dealings or other circumstances as well as in any exchange of words. [A
conspiracy, or unlawful agreement may be found where] the conspirators had a unity of
purpose or a common design and understanding, or a meeting of minds in an unlawful
arrangement ....” American Tobacco Co. v. United States, 328 U.S. 781, 809-810 (1946)
(citation omitted).
101 465 U.S. 752, 768 (1984), refusing to find that concerted action may be inferred from the
fact that a seller terminated a dealer after the seller had received complaints from a
competing dealer about the terminated dealer’s pricing policies.
102 “Tacit collusion, sometimes called oligopolistic price coordination or conscious
parallelism, describes the process, not in itself unlawful, by which firms in a concentrated
market might in effect share monopoly power, setting their prices at a profit-maximizing,
supracompetitive level by recognizing their shared economic interests and their
interdependence with respect to price and output decisions. ... Firms that seek to recoup
predatory losses through the conscious parallelism of oligopoly must rely on uncertain and
ambiguous signals to achieve concerted action. The signals are subject to misinterpretation
and are a blunt and imprecise means of ensuring smooth cooperation, especially in the
context of changing or unprecedented market circumstances. This anticompetitive minuet
is most difficult to compose and to perform ....” Brooke Group, Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 227, 228 (1993) (citations omitted); .
CRS-20
restraint of interstate commerce, is sufficient to establish an unlawful conspiracy
under the Sherman Act.103
In Theatre Enterprises v. Paramount Film Distributing Corp., the Court continued
to state that parallel behavior by itself is not necessarily proof of a conspiracy:
The crucial question is whether respondents’ conduct toward petitioner stemmed
from independent decision or from an agreement, tacit or express. To be sure,
business behavior is admissible circumstantial evidence from which the fact
finder may find agreement. But this Court has never held that proof of parallel
business behavior conclusively establishes agreement or, phrased differently, that
such behavior itself constitutes a Sherman Act offense. Circumstantial evidence
of consciously parallel behavior may have made heavy inroads into the
traditional judicial attitude toward conspiracy; but “conscious parallelism” has
not yet read conspiracy out of the Sherman Act entirely.104
Although the Supreme Court has stated, and lower court decisions have
continued to illustrate, that an unlawful agreement or conspiracy in restraint of trade
may be proved by consciously parallel behavior that is accompanied by any of several
“plus” factors — "the additional facts or factors required to be proved as a
prerequisite to finding that parallel action amounts to a conspiracy"105 — there has
not been much agreement or standardization concerning exactly which “plus” factors
are to be given what, if any, evidentiary weight.106 The “plus” factors courts have
considered favorably include artificial standardization of products107 and raising
prices in time of surplus.108 Less persuasive is evidence that indicates merely that the
parties had an opportunity to collude.109 That the parties communicated with one
103 Interstate Circuit, Inc. v. United States, 306 U.S. 208, 227 (1939) (citations omitted).
104 346 U.S. 537, 540-4 (1954) (citations omitted).
105 In re Baby Food Antitrust Litigation, 166 F.3d 112, 122 (3d Cir. 1999), citing, Areeda,
ANTITRUST LAW § 1433(e).
106 For example, the Baby Food court, supra, note 105, at 122 quoted Balaklaw v. Lovell,
822 F.Supp. 892, 903 (N.D.N.Y. 1993) and cited Todorov v. DCH Healthcare Authority,
921 F.2d 1438, 1456 note 30 (11th Cir.1991): "[T]he mere presence of one or more of these
'plus factors' does not necessarily mandate the conclusion that there was an illegal
conspiracy between the parties, for the court may still conclude, based upon the evidence
before it, that the defendants acted independently of one another, and not in violation of
antitrust laws"; “If an inference of ... an agreement may be drawn from highly ambiguous
evidence, there is a considerable danger that the doctrines enunciated in [Continental T.V.,
Inc. v. GTE] Sylvania [, Inc., 433 U.S. 36 (1977), non-price restraints evaluated under the
antitrust rule of reason] and Colgate [supra, note 97, freedom of seller to deal with whom
he wishes] will be seriously eroded,” Monsanto Co. v. Spray-Rite Service Corp., 465 U.S.
752, 763 (1984).
107 C-O-Two Fire Equip. Co. v. United States, 197 F.2d 489 (9th Cir. 1952), cert. denied, 344
U.S. 892 (1952).
108 American Tobacco Co. v. United States, 328 U.S. 781 (1946).
109 See, e.g., Greater Rockford Energy & Tech. Corp. v. Shell Oil Co., 998 F.2d 391 (7th Cir.
1993); Carpet Group International v. Oriental Rug Importers Ass’n, 256 F.Supp.2d 249
(continued...)
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another is, at best, ambiguous evidence of conspiracy.110 The bottom line appears to
be whether the parties acted in their own self-interest: where there is no direct
evidence of a conspiracy, behavior as consistent with a desire to maintain
profitability or to remain in business at all as with any participation in injurious or
unlawful conduct does not constitute sufficient indirect evidence of an alleged
conspiracy;111 similarly, where a defendant would have little or no motive to enter a
conspiracy, his actions will be considered unilateral and independent.112
Based upon these cases and assuming that there is no evidence that the drug
manufacturers in question conspired or colluded when reducing drug supplies to
Canadian distributors and pharmacies, it would appear difficult to sustain a charge
that the drug companies that limit sales to Canada have violated the Sherman Act.
Indeed, there may be lawful reasons for their actions. For example, the manufacturers
may be capable of supplying only the United States market and to a lesser extent
foreign markets because of limited production capacity. They may also need to
recoup research and development costs by obtaining a profit margin through sales
primarily in the U.S. However, if one were able to show that the drug companies did
in fact conspire or collude or that they engaged in parallel behavior accompanied by
other factors, a case might be made for a Sherman Act violation.
Despite the apparent lack of violation of federal antitrust law, drug
manufacturers that limit sales of prescription drugs to Canadian distributors and
pharmacies may still violate state antitrust laws. Because antitrust laws vary from
state to state, this section does not provide an exhaustive analysis of state antitrust
109 (...continued)
(D.N.J. 2003)both standing for the proposition that mere membership in a trade association,
even with the knowledge that the association is engaging in unlawful activity, is insufficient
to prove that a party participated in such activity.
110 See, e.g., Monsanto, supra, note 106, at 764: “Permitting an agreement to be inferred
merely from the existence of complaints ... could deter or penalize perfectly legitimate
conduct.” See also, In re Baby Food Antitrust Litigation, supra, note 105; Intervest, Inc. v.
Bloomberg, L.P., 340 F.3d 144 (3d Cir. 2003); but see. e.g. Toys “R” Us v. Federal Trade
Commission, 221 F.3d 928, 934-935 (7th Cir. 2000: “When circumstantial evidence is used,
there must be some evidence that ‘tends to exclude the possibility’ that the alleged
conspirators acted independently. ... The test states only that there must be some evidence
which, if believed, would support a finding of concerted behavior. In the context of an
appeal from the Commission, the question is whether substantial evidence supports its
conclusion that it is more likely than not that the manufacturers acted collusively.”
(Citations omitted).
111 Intervest, supra, note 110; Twombly v. Bell Atlantic Corp., 313 F.Supp.2d 174 (
S.D.N.Y. 2003).
112 Matsushita Electric Industries Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Todorov,
supra, note 106; Hall v. United Air Lines, 296 F.Supp.2d 652, 600 (E.D.N.C. 2003),
quoting, Matsushita at 588: [“C]onduct as consistent with permissible competition as with
illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy. ...
a plaintiff seeking damages for a violation of § 1 [of the Sherman Act] must present
evidence ‘that tends to exclude the possibility’ that the alleged conspirators acted
independently.”
CRS-22
laws, but rather describes the current legal dispute against GlaxoSmithKline (GSK)
in Minnesota as an example of potential liability under state antitrust statutes.
State Antitrust Law.
Even if drug manufacturers that limit sales of prescription drugs to certain
Canadian distributors and pharmacies are found not to have violated federal antitrust
laws, they may still be in violation of state antitrust law. Antitrust laws exist in all
fifty states and the District of Columbia, but their scope and enforcement differ from
state to state.113 Most state antitrust laws mirror the federal statutes or are interpreted
to reflect case law interpreting these federal statutes,114 although there are a small
number of states in which a restraint of trade violation includes a unilateral act.115
This section describes the current legal dispute between the state of Minnesota and
GlaxoSmithKline (GSK) over state antitrust law and its effect on prescription drug
importation.
In late 2003, the Minnesota Attorney General (AG), who is investigating
whether GSK violated Minnesota antitrust laws,116 filed a court motion seeking to
compel GSK to release information located in Canada and the United Kingdom about
the company’s decision to stop selling drugs to Canadian pharmacies that then sell
the drugs to U.S. consumers. According to the AG, GSK conspired to limit drug sales
to Canada, and “GSK’s refusal to supply prescription drugs to Canadian pharmacies
that sell drugs to Minnesota buyers violates state laws.”117 In return, GSK argued that
“importing drugs from Canada is illegal and a drug company can take steps to stop
illegal sales of its products;”118 and also that federal law preempts Minnesota’s
antitrust laws. On May 7, the district court of Hennepin County, Minnesota ordered
GSK to produce the records and information sought by the AG.119 The court ruled
that even if GSK’s position that “the importation of non-approved drugs from Canada
is illegal under the FFDCA, and there cannot be a conspiracy in violation of the
113 See, generally, Section of Antitrust Law, American Bar Association, STATE ANTITRUST
ENFORCEMENT HANDBOOK, 2003.
114 Id., See, e.g., Minnesota Twins Partnership v. State ex rel. Hatch, 592 N.W.2d 847, 851
(Minn. Ct. App. 1999), cert. den., Hatch v. Minnesota Twins Partnership, 528 U.S. 1013
(1999): “Minnesota's antitrust laws are generally interpreted consistently with federal courts'
construction of federal antitrust laws,” citing, State by Humphrey v. Alpine Air Products,
Inc., 490 N.W.2d 888, 894 (Minn. Ct. App.1992), aff'd, 500 N.W.2d 788 (Minn. S.Ct. 1993).
115 E.g., § 203(A) of the Oklahoma Antitrust Reform Act (OKLA. STAT. tit. 79, §§ 201 et seq.)
makes illegal and “against public policy” not only agreements, contracts, or combinations
in restraint of trade, but also “acts” in restraint of trade.
116 Minn. Stat. §§ 325D.49 et seq.
117 Inside Washington Publishers, Judge Wants More Info Before Deciding Motion to
Compel Against GSK, FDA WEEK, Nov. 21, 2003.
118 Id.
119 In the Matter of GlaxoSmithKline plc, File No. MC 03-15992 (Minn. District Ct.,
5/7/2004) (Slip opinion).
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antitrust laws to restrain trade in illegal goods”120were correct, which the court
questioned, “[e]nforcement of federal law is the responsibility of the FDA, not of
GSK,” especially since “the FDA has never even reviewed GSK’s boycott,” much
less specifically approved it.121 The district court judge obliquely addressed the
preemption argument, finding sufficient authority for the Minnesota AG’s
investigation and the document request in pursuit of that investigation under the
Minnesota statute that mandates that the Attorney General “investigate violations of
the business and trade laws of this state ....”122
Although no lawsuit has actually been filed against GSK, it is possible that a
state antitrust case could be filed against GSK if the documents to be turned over to
the AG indicate a conspiracy between GSK and other drug companies involving
blocked sales to Canadian pharmacies.123
International Trade Law124
As with antitrust law, international trade obligations may also impact the
feasibility of prescription drug importation. On the one hand, permitting some
importation of prescription drugs may be seen as removing an existing barrier to
trade or trade liberalizing; on the other hand, the United States’ international trade
obligations may present obstacles to prescription drug importation. Furthermore,
legislative and/or regulatory proposals regarding importation may be inconsistent
with provisions of various international trade agreements including, but not limited
to, the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement
on Technical Barriers to Trade (TBT) and the General Agreement on Trade in
Services (GATS), all of which are a part of the World Trade Organization (WTO)
Agreement to which the United States is a signatory member.125 At the same time,
however, these agreements contain exceptions that may be used to justify some of the
potential inconsistencies that may arise.
120 Id. at 11.
121 Id.
122 Id. at 6, citing Minn. Stat. § 8.31(2002).
123 Inside Washington Publishers, Mn Judge: Rx Firms Blocking Drug Imports Could Face
Antitrust Suits, FDA WEEK, May 14, 2004.
124 This section was written by Todd B. Tatelman, Legislative Attorney in the American Law
Division of CRS.
125 It should be noted that many of the same issues raised in the WTO context may also arise
with respect to the North American Free Trade Agreement (NAFTA), to which the United
States, Canada, and Mexico are signatories. While it appears that under NAFTA similar
defenses are potentially available, the rationales and analysis may be quite different.
Furthermore, issues have been raised with respect to other Free Trade Agreements (FTA)
to which the United States is a party; however, since each agreement contains different
provisions, they should be analyzed independently and are beyond the scope of this report.
CRS-24
General Agreement on Tariffs and Trade.
Under the GATT 1994, Articles III:4, I:1 and XI:1 contain provisions that may
affect prescription drug imports. Generally, Article III governs the application of
domestic regulatory measures requiring that “laws, regulations and requirements
affecting the internal sale, offering for sale, purchase, transportation, distribution or
use of products ... should not be applied to domestic products so as to afford
protection to domestic production.” Article III:4 specifically obligates Member
countries, with respect to all such domestic measures, to provide national treatment
to imported products from other WTO Member countries. Simply put, national
treatment requires that Member countries not discriminate against imported goods
relative to like domestic products. In addition to the national treatment obligation,
internal regulatory measures are also required to comply with Article I:1, the most-
favored-nation (MFN) clause. MFN requires that “any advantage, favor, privilege or
immunity granted by any contracting party to any product originating in or destined
for any other country shall be accorded immediately and unconditionally to the like
product originating in or destined for the territories of all other contracting parties.”
The inclusion of Article III measures within the Article I:1 MFN obligation was
intended to extend the obligation to them “regardless of whether national treatment
is provided with respect to these matters.”126
To the extent that any legislative or regulatory proposal contains requirements
affecting the internal sale, offering for sale, purchase, transportation, distribution, or
use of prescription drugs in the United States, it could be viewed as falling within the
purview of Article III. The provisions of Article III have been interpreted broadly,
with the use of the word “affecting” having been interpreted as implying that the
drafters of the Article intended it to apply to “not only the laws and regulations which
directly govern[] the conditions of sale or purchase, but also in any law or regulations
which might adversely modify the conditions of competition between the domestic
and imported products in the international market.”127 Given this broad
interpretation, it appears that any proposals containing provisions affecting the
labeling of imported drugs,128 or requiring that prescription drugs produced in foreign
countries for importation be destined only for the United States may be interpreted
by the WTO as inconsistent with our national treatment and MFN obligations.
In addition to potential conflicts with Articles III:4 and I:1, GATT Article XI:1
prohibits a Member country from instituting or maintaining quantitative prohibitions
126 World Trade Organization, Analytical Index: Guide to GATT Law and Practice 30 (6th
ed. 1995) (quoting the proposal offered by the United States during the Second Session of
the Preparatory Committee of the United Nations Conference on Trade in Employment,
Geneva, April-October 1947).
127 Panel Report on Italian Discrimination Against Imported Agricultural Machinery,
GATT, Basic Instruments and Selected Documents (BISD), 7th Supp. 60, 64 ¶ 12 (1959).
128 It should be noted that not all labeling provisions would be inconsistent with GATT
obligations. Article IX of the GATT 1994 permits contracting parties to require marks of
origin, and the WTO Agreement on Rules of Origin contains additional obligations. Only
to the extent that a labeling requirement goes beyond what is permitted in either of these
provisions could it be considered inconsistent with Article III:4.
CRS-25
or restrictions “on the importation of any product of the territory of any other
contracting party.”129 The language of Article XI has been interpreted to be
comprehensive, applying to “all measures instituted or maintained by a contracting
party prohibiting or restricting the importation, exportation ... of the products other
than measures that take the form of taxes duties and charges.”130 Measures may fall
within the scope of Article XI:1 if they “prevent the importation of goods as such,”131
or “affect the right of importation as such.”132 Furthermore, Article XI:1 requires that
any quantitative restrictions that are imposed be instituted on a non-discriminatory
basis, in other words, that all exports of like products to and imports of like products
of, third countries be similarly restricted or prohibited. Therefore, to the extent that
any legislative or regulatory proposal appears to prohibit, or authorize prohibitions,
on the importation of prescription drugs under specific circumstances, there is a
possibility that the proposals may constitute or result in a measure affecting
importation “as such,” and thus, may be challenged under Article XI:1.
Article XX contains the general exceptions to the GATT. These general
exceptions permit Members to impose otherwise GATT-inconsistent measures to
fulfill certain enumerated public policy objectives, provided that the measures are not
“applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised
restriction on international trade.”133 Specifically relevant to legislation involving
prescription drugs is Article XX(b), which exempts measures “necessary to protect
human, animal or plant life and health.”134
To determine whether a measure is eligible for the Article XX(b) exception a
three-part test, as established by the WTO Appellate Body (AB) must be applied.
First, the policy must fall within the range of policies designed to protect life or
health. Second, the country invoking the exception must show that any GATT/WTO
inconsistent measures are “necessary” to fulfill the policy objective. Third, the
measures must be applied in conformity with the introductory clause, or “chapeau,”
of Article XX.135 Finally, should the United States invoke Article XX(b) in defense
129 Article XI:1 states that “no prohibitions or restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export licenses or other
measures, shall be instituted or maintained by any contracting party on the importation of
any product of the territory of any other contracting party or on the exportation or sale for
export of any product destined for the territory of any other contracting party.”
130 Panel Report Japan – Trade in Semi-Conductors, GATT, BISD, 35th Supp. 116, 153, ¶
104 (1988).
131 Panel Report on Canada – Administration of Foreign Investment Review Act, GATT,
BISD, 30th Supp. 140, 162-63, ¶ 5.14 (1985).
132 Panel Report on Untied States – Measures Affecting Alcoholic and Malt Beverages,
GATT, BISD, 39th Supp. 206, 292, ¶ 5.63 (1993).
133 GATT Art. XX, chapeau.
134 Id. at Art. XX(b).
135 See Appellate Report on United States – Standards for Reformulated and Conventional
(continued...)
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of the import restrictions, the United States would bear the burden of demonstrating
that the measures satisfy all three parts of the test.136
In addition to Article XX(b), another possibly relevant GATT exception is
Article XX(d), which may be invoked where an allegedly GATT-inconsistent
measure can be shown to be “necessary to secure compliance with laws or
regulations that are not inconsistent with the provisions of the Agreement, including
those related to customs enforcement, ... the protection of patents, trade marks and
copyrights, and the prevention of deceptive practices.”
WTO Agreement on Technical Barriers to Trade.
According to its preamble, the WTO Agreement on Technical Barriers to Trade
(TBT Agreement) expands upon the GATT Article III obligations with respect to
internal regulations and is intended to promote the general aims of the GATT.137 The
TBT Agreement applies to all products, including industrial and agricultural
products, but does not apply to measures covered by the WTO Agreement on
Sanitary and Phytosanitary Measures, nor to government purchasing specifications
for production or consumption of governmental bodies.138
The three categories of measures covered by the TBT Agreement are: (1)
technical regulations; (2) standards; and (3) conformity assessment procedures. Of
particular relevance to prescription drug importation are technical regulations and
conformity assessment procedures.
A “technical regulation” is defined as a “[d]ocument which lays down product
characteristics or their related processing and production methods, including their
administrative provisions, with which compliance is mandatory.”139 A technical
regulation may also include or deal exclusively with terminology, symbols,
packaging, marking or labeling requirements as they apply to a product, process or
production method.”140 To qualify as a “technical regulation,” a measure must fulfill
three criteria, derived from the above-cited definition:
135 (...continued)
Gasoline, WT/DS2/AB/R (Apr. 29, 1996), p. 25 [hereinafter cited as U.S. - Gasoline (AB
Report)]. The chapeau states that measures are not prohibited so long as they are not
“applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised
restriction on international trade.” GATT 1994, Art. XX.
136 See generally World Trade Organization, WTO Analytical Index; Guide to WTO Law and
Practice 341-42 (1st ed. 2003)[hereinafter cited as WTO Analytical Index].
137 TBT Agreement, Preamble.
138 See Appellate Body Report on European Communities – Measures Affecting Asbestos
and Asbestos Containing Products, WT/DS135/AB/R (Mar. 12, 2001) ¶ 80 [hereinafter EC
– Asbestos (AB Report)].
139 TBT Agreement, Annex 1, ¶ 1.
140 Id. at Annex I, ¶ 3.
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First, the document must apply to an identifiable product or group of
products. The identifiable product or group of products need not, however, be
expressly identified in the document. Second, the document must lay down one
or more characteristics of the product. These product characteristics may be
intrinsic, or they may be related to the product. They may be prescribed or
imposed in either a positive or negative form. Third, compliance with the product
characteristic must be mandatory.141
The TBT Agreement’s primary obligations require that the central governments
of WTO Members provide national treatment with respect to technical regulations.142
In addition, WTO Members must also “ensure that technical regulations are not
prepared, adopted or applied with a view to or with the effect of creating unnecessary
obstacles to international trade.”143 This means that “technical regulations shall be
no more trade-restrictive than necessary to fulfil a legitimate objective, taking
account of the risks non-fulfillment would create. Such legitimate objectives
[include] ... the prevention of deceptive practices; [and] protection of human health
or safety ....” Moreover, Members are obligated not to maintain technical regulations
“if the circumstances or objectives giving rise to their adoption no longer exist or if
the changed circumstances or objectives can be addressed in a less trade-restrictive
manner.”144
A conformity assessment procedure is “[a]ny procedure used, directly or
indirectly, to determine that relevant requirements in technical regulations or
standards are fulfilled.”145 Such procedures may include, among other things,
“procedures for sampling, testing and inspection; evaluation, verification and
assurance of conformity; registration, accreditation and approval as well as their
combinations.”
Obligations concerning conformity assessment procedures are primarily
contained in Article 5 of the TBT Agreement, which requires WTO Members to
ensure that a number of specific requirements are met “where a positive assurance
of conformity with technical regulations is required.”146 These include a requirement
that the procedures be prepared, adopted and applied in accordance with the
principles of national treatment.147 The TBT Agreement further provides that “access
141 Appellate Body Report on European Communities – Trade Description of Sardines,
WT/DS231/AB/R (September 26, 2002), ¶ 176.
142 See TBT Agreement, Art. 2.1 (requiring Member countries to “ensure that ... products
imported from the territory of any Member shall be accorded treatment no less favourable
than that accorded to like products of national origin and to like products originating in any
other country.”).
143 Id. at Art. 2.2.
144 Id. at Art. 2.3.
145 Id. at Annex 1, ¶ 3.
146 Id. at Art. 5.1.
147 Id. at Art. 5.1.1 (stating that suppliers are to be granted access to “like products
originating in the territories of other Members under conditions no less favourable than
(continued...)
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entails suppliers’ right to an assessment of conformity under the rules of the
procedure.”148 In addition, conformity assessment procedures may not be “prepared,
adopted or applied with a view to or with the effect of creating unnecessary obstacles
to international trade,”149 meaning, among other things, that “conformity assessment
procedures shall not be more strict or be applied more strictly than is necessary to
give the importing Member adequate confidence that products conform with the
applicable technical regulations ..., taking account of the risks non-conformity would
create.”150
Application of the TBT Agreement will depend on the details of any
prescription drug importation program that might be enacted. The AB has speculated
that a measure consisting “only of a prohibition on ... [a product] ... might not
constitute a ‘technical regulation,’” thereby placing it outside the scope of the TBT
Agreement.151 On the other hand, a measure that has both “prohibitive and permissive
elements” may potentially be covered by the Agreement.152 If a legislative or
regulatory proposal were to be considered solely in light of provisions that would
allow importation of drugs from a limited set of approved countries, the proposal
could potentially be viewed as constituting solely a prohibition (albeit implied) on
importing prescription drugs from countries other than those named or designated as
such. One might thus be able to argue, based on the above-quoted AB statement, that
there are no issues under the TBT Agreement. On the other hand, were any such
proposal to be viewed more broadly – that is, as having both prohibitive and
permissive elements – TBT obligations may come into play.
While the TBT Agreement does not contain a separate Article with general
exceptions, there is language within the Agreement that appears to provide for
something similar to an Article XX(b) exception. Specifically, the Preamble to the
TBT Agreement states that “no country should be prevented from taking measures
necessary ... for the protection of human, animal or plant life or health ....”153 Given
that there has been no WTO panel or AB ruling to date with respect to this language,
it remains unclear as to what, if any, weight or interpretation this language would be
given, especially considering it appears only in the Preamble and is not within the
body of the agreement.
147 (...continued)
those accorded to suppliers of like products of national origin or originating in any other
country, in a comparable situation.”).
148 Id.
149 Id. at Art. 5.1.2.
150 Id.
151 EC – Asbestos (AB Report), supra note 138, at ¶ 71.
152 Id. at ¶ 64.
153 TBT Agreement, Preamble.
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General Agreement on Trade in Services.
The General Agreement on Trade in Services (GATS)154 applies to “measures
by Members affecting trade in services.”155 The Agreement defines trade in services
as the supply of a service through four modes, two of which would appear to be most
relevant to the issue of prescription drug importation: cross-border supply, or supply
“from the territory of one Member into the territory of any other Member” (Mode 1)
and consumption abroad, or supply “in the territory of one Member to the service
consumer of any other Member” (Mode 2).156
For purposes of the GATS, the phrase “measures by Members affecting trade
in services” has been interpreted broadly, encompassing “any measure of a Member
to the extent it affects the supply of a service regardless of whether such measure
directly governs the supply of a service or whether it regulates other matters but
nevertheless affects trade in services.”157
A basic obligation of the GATS is the unconditional most-favored-nation
(MFN) obligation set forth at Article II:1. The obligation applies to “any” GATS-
covered measure, though Members are allowed to exempt specific national measures
pursuant to Article II:1 and the Annex on Article II Exemptions and may accord
preferential treatment to countries that are members of regional trade agreements (see
GATS, Arts. V and V bis). The other fundamental GATS obligations are the market
access and national treatment obligations made with respect to a Member’s specific
scheduled sectoral commitments.158 These are set forth, with any limitations, in the
Member’s Schedule of Specific Commitments by mode of service supply. As with
the TBT Agreement, application of the GATS will depend on the details of any
specific prescription drug importation that might be enacted. For example, in the
event that a legislative or regulatory proposal affects the wholesale distribution of
prescription drugs, the measure may be subject to a WTO challenge as inconsistent
with our specific GATS commitments.
154 General Agreement on Trade in Services (GATS), entered into force January 1, 1995,
printed in H.Doc.103-316, v.1, at 1586-1653, and v. 2, at 3748, and available electronically
at [http://www. tcc.mac.gov].
155 GATS, Art. I:1.
156 GATS, Art. I:2. The other two modes of service supply – commercial presence of one
Member in the territory of any other Member, and presence of natural persons, or supply
“by a service supplier of one Member, through presence of natural persons of a Member, in
the territory of any other Member – would not seem to be directly at issue here.
157 Panel Report on EC – Regime for the Importation, Sale and Distribution of Bananas,
WT/DS27/R/USA (May 22, 1997) ¶ 7.285. See generally WTO Analytical Index, supra note
136, at 1089-91.
158 GATS, Arts. XVI, XVII. Article XXI of the GATS allows a WTO Member to modify or
withdraw any of its scheduled commitments, once three years have elapsed from the date
the commitment entered into force, subject to certain conditions, including possible
compensation to Members affected by the change.
CRS-30
GATS obligations are also subject to various general exceptions at Article XIV,
including one for measures “necessary to protect human, animal, or plant life or
health.” General exceptions are subject to a requirement that such measures “are not
applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where like conditions prevail, or a disguised
restriction on trade in services.” While there does not appear to be any WTO
jurisprudence on this exception to date, it would seem that the same or similar test
as the GATT Article XX(b) exception would also be applicable with respect to the
GATS Article XIV. It should be noted, however, that the GATS contains the phrase
“like conditions” as opposed to the phrase “same conditions” found in the GATT. In
the absence of any WTO jurisprudence, it remains unclear whether this change in
language would have any effect on the application of the exception.159
Patent Law
In addition to raising questions about antitrust law and trade law, the issue of
prescription drug imports has also prompted inquiries regarding whether or not a
drug importation program would violate patent rights. In particular, a federal court
case, Jazz Photo Corp. v. ITC,160 has raised the prospect that a drug manufacturer
could, under certain circumstances, sue a drug importer for patent infringement and
block U.S. imports of drugs the company sells abroad. Under patent law, the first sale
of a patented product in a given market extinguishes, or “exhausts,” the patent
holder’s rights in the product. Prior to the Jazz Photo decision, some legal
commentators believed that this exhaustion doctrine extended internationally,
meaning that the sale of a patented product abroad would exhaust the patent rights
in the U.S. and elsewhere, thereby allowing the purchaser of the product to use, sell,
or otherwise do as he pleases with the product without regard to the patent holder,
unless the purchaser is contractually restricted from importing into the U.S.
In Jazz Photo, however, the court, which addressed the exhaustion doctrine
question only briefly, stated: “United States patent rights are not exhausted by
products of foreign provenance. To invoke the protection of the first sale doctrine,
the authorized first sale must have occurred under the United States patent.”161 Under
this ruling, because the U.S. patent is not exhausted by the foreign sale, the patent
holder retains its patent rights. Thus, a drug manufacturer could exercise these rights
to block imports of its patented drug products into the U.S. It is important to note,
however, that some legal commentators have questioned the validity of the ruling in
the Jazz Photo case, and at least one bill in Congress would overturn the ruling with
159 Should the United States take any legislative or regulatory action with respect to the
importation of prescription drugs, any challenges that are brought on international trade
grounds will be required to be adjudicated under the procedures set forth in the specific
agreement. For example, if a challenge is brought pursuant to a WTO Agreement, that
challenge will be required to be heard according to the procedures contained in the WTO
Dispute Settlement Understanding. See CRS Report RS20088, Dispute Settlement in the
World Trade Organization: An Overview, by Jeanne J. Grimmett; see also WTO website,
available at [http://www.wto.org/english/tratop_e/dispu_e/] dispu_e.htm.
160 264 F.3d 1094 (Fed. Cir. 2001).
161 Id. at 1105
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respect to patent exhaustion for pharmaceutical imports.162 For further information
on the subject, see CRS Report RL32400, Patents and Drug Importation, by John R.
Thomas.
III. Internet Pharmacies
Just as the FDA has expressed concerns about the safety of imported drugs,
federal regulators have become increasingly worried about the safety of online
pharmacies and prescription drug sales over the Internet.163 Indeed, the regulation of
prescription drug importation and the regulation of online pharmacies often overlap
because many consumers use online pharmacies to purchase imported drugs.
Regardless of whether or not drugs purchased online are imported, the FDA is
worried about the safety of such medications because of concerns about the lack of
adequate physician supervision for consumers who purchase prescription drugs
online, the prospects for tampering with or counterfeiting such drugs, and the
possibility that such drugs may be handled, dispensed, packaged, or shipped
incorrectly. This section discusses current laws and regulations that govern online
pharmacies and physicians who prescribe medications over the Internet. Specifically,
this section provides an overview of the various federal and state laws that regulate
this field, including laws covering prescription drugs, controlled substances,
pharmacies, and the practice of medicine.
With the advent of the Internet, many individuals have turned from traditional
neighborhood pharmacies and large chains with a neighborhood presence to online
pharmacies to purchase prescription drugs, and an increasing number of physicians
have incorporated the Internet and email into their medical practice. Use of this
technology has many advantages for both the doctor and the patient, including cost
savings, convenience, accessibility, and improved privacy and communication.164
Although many online pharmacies are legitimate businesses that offer safe and
convenient services similar to those provided by traditional neighborhood
pharmacies, other online pharmacies – often referred to as “rogue sites” – engage in
practices that are illegal, such as selling unapproved or counterfeit drugs or
dispensing drugs without a prescription.165 Some rogue sites operate in a legal gray
area in which the online pharmacy, as mandated by federal law, requires a
prescription before dispensing prescription drugs, but allows patients to secure a
prescription by completing an online questionnaire that is reviewed by a doctor who
never examines or speaks to the patient. This practice, though potentially unsafe for
patients who may be diagnosed incorrectly, is not necessarily illegal.
162 See S. 2328.
163 Some of these concerns are reflected in a recent report by the Government Accountability
Office (GAO; formerly the General Accounting Office). GAO Report GAO-04-820, Internet
Pharmacies: Some Pose Safety Risks for Consumers.
164 Food and Drug Administration, U.S. Department of Agriculture, Buying Drugs Online:
It’s Convenient and Private, But Beware of ‘Rogue Sites’ (2001), at
[http://www.fda.gov/fdac/features/2000/100_online.html].
165 Id.
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Current regulation of online pharmacies and doctors consists of a patchwork of
federal and state laws in an array of areas. At the federal level, the FDA regulates
prescription drugs under the FFDCA, which governs, among other things, the safety
and efficacy of prescription medications, including the approval, manufacturing, and
distribution of such drugs.166 It is the FFDCA that requires that prescription drugs
may be dispensed only with a valid prescription.167 The DEA enforces the Controlled
Substances Act (CSA), which is a federal statute that establishes criminal and civil
sanctions for the unlawful possession, manufacturing, or distribution of certain
addictive or dangerous substances, including certain prescription drugs that share
these properties, such as narcotics and opiates.168 At the state level, state boards of
pharmacy regulate pharmacy practice, and state medical boards oversee the practice
of medicine.169 Thus, some of the laws that govern online pharmacies and doctors
vary from state to state. The laws that govern each of these areas are described
separately below.
Federal Oversight
As noted above, the CSA is a federal statute that establishes criminal and civil
sanctions for the unlawful possession, manufacturing, or distribution of addictive or
dangerous substances.170 Although the CSA is generally known for prohibiting illegal
drugs, such as heroin and cocaine, that have a high potential for abuse and no
accepted medical use, the statute also covers prescription drugs, which generally have
less potential for abuse and an accepted medical use. Some prescription drugs,
however, such as narcotics and opiates that are often used in the treatment of pain,
are more closely regulated under the CSA because they have a greater potential for
abuse than other prescription drugs and may lead to physical dependence.
It is the latter category of prescription painkillers that appear to be among the
drugs most heavily dispensed by certain Internet pharmacies in accordance with
prescriptions that are issued based on online questionnaires.171 This practice has
sometimes been abused by rogue sites that dispense large quantities of addictive
substances to customers apparently seeking access to prescription painkillers, and it
has lead to instances of addiction, overdose, and death. In response to cases in which
online doctors have written thousands of prescriptions for controlled substances
without examining their patients, the federal government has begun prosecuting
certain doctors under the CSA by charging them with the illegal distribution of
166 21 U.S.C. § 301 et seq.
167 Id. at § 353(b).
168 Id. at § 801 et seq. For more information on the Controlled Substances Act, see CRS
Report 97-141A, Drug Smuggling, Drug Dealing and Drug Abuse: Background and
Overview of the Sanctions Under the Federal Controlled Substances Act and Related
Statutes, by Charles Doyle.
169 The FFDCA excludes the practice of medicine from its jurisdiction. 21 U.S.C. § 396.
170 Id. at § 801 et seq.
171 See, e.g., Gilbert M. Gaul and Mary Pat Flaherty, Doctors Medicate Strangers on Web,
WASH. POST, Oct. 21, 2003, at A1.
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controlled substances.172 Penalties under the CSA vary depending on the amount and
type of substance involved but generally include monetary fines, forfeiture, and
imprisonment.173
In addition, the CSA regulates imports and exports of controlled substances.
Under the statute, it is unlawful to import a controlled substance into the country
unless the importer is registered with the DEA and has obtained DEA approval to
engage in such importation, and illegal importation of controlled substances is a
felony that may result in imprisonment or fines.174 Because the DEA considers
anyone who causes controlled substances to be brought into the country to be an
importer of controlled substances, an individual or pharmacy who causes controlled
substances to be mailed or shipped into the U.S. may violate the law and be subject
to criminal penalties.175 Specifically, the DEA notes:
It is illegal for a United States consumer or business to have controlled
substances shipped to the United States from a foreign country unless the person
receiving the controlled substances is registered with DEA as an importer or
researcher and is in compliance with [controlled substances laws and
regulations]. ... The acquisition of a controlled substance from a foreign country
by any person other than a DEA-registered importer or researcher is a violation
of the Controlled Substances Act. Therefore, United States pharmacies which fill
prescriptions for controlled substances by obtaining those controlled substances
from Canada, or any other foreign country, are in violation of the Controlled
Substances Act, regardless of whether the consumer possesses a legitimate
prescription issued by a United States practitioner in the usual course of their
professional practice. Likewise, consumers are also in violation of the Controlled
Substances Act if they have prescriptions for controlled substances filled in
foreign countries and shipped to the United States.176
As noted above, prescription drugs are also regulated by the FDA under the
FFDCA.177 Although state law also governs the prescribing of drugs, the FFDCA
covers certain aspects of the prescribing process, including the requirement that
prescription drugs may not be dispensed without a valid prescription.178
172 Id.
173 21 U.S.C. § 841 et seq.
174 Id. at §§ 957, 960.
175 See, e.g., Importing Controlled Substances From Canada and Other Foreign Countries,
69 FR 38920 (June 29, 2004).
176 Id. at 38921-22. The CSA contains a limited exception for personal medical use, which
allows U.S. residents who travel to foreign countries and non-U.S. residents who travel to
the United States to carry controlled substances for their legitimate personal medical use,
but this exception does not permit the shipment of controlled substances into the country for
purposes of an individual’s personal medical use. 21 U.S.C. § 956.
177 Id at § 301 et seq.
178 Id. at § 353(b).
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Although federal law requires that prescription drugs be dispensed in
accordance with a prescription, the FFDCA does not define the meaning of
“prescription.” Rather, each state defines what constitutes a valid prescription under
its pharmacy laws. Because such definitions differ from state to state, there is no
uniform, national definition of the term “prescription.”179 Thus, certain activities,
such as prescribing drugs without performing an in-person examination, may be
explicitly illegal in one state but of ambiguous legal status in another.
Concerned about reports of rogue online pharmacies, Congress has considered
legislation to establish a federal definition of what constitutes a valid prescription.180
During the Clinton Administration, for example, legislators contemplated requiring
online pharmacies to disclose information about themselves and about the doctors
approving prescriptions on their sites, but the legislation ultimately faded.181 In the
wake of recent reports of abuses by online pharmacies, however, interest in such
legislation has revived, and Congress has held hearings to discuss legislative
solutions, including the establishment of a single federal standard for prescriptions.182
Congress is also exploring the possibility of controlling the means by which
allegedly rogue sites do business, namely by restricting their ability to advertise on
search engines, make credit card sales, and ship prescription drugs to consumers. For
example, Google, an Internet search engine, recently announced that it no longer
accepts advertising from unlicenced pharmacies and now prohibits the use of certain
controlled substances as keywords for search purposes.183 Meanwhile, at least three
congressional committees are investigating “the roles played by Visa International,
MasterCard Inc., FedEx Corp. and United Parcel Service Inc. in the Internet sales,”184
as well as exploring the prospects for establishing a certification program that would
make it easy for such companies to determine when they are doing business with a
179 Inside Washington Publishers, FDA May Back Changing Law to Define Internet
‘Prescription’, FDA WEEK, March 28, 2003.
180 Id..
181 Gilbert M. Gaul and Mary Pat Flaherty, Doctors Medicate Strangers on Web, WASH.
POST, Oct. 21, 2003, at A1.
182 See, e.g., Point, Click, Self-Medicate: A Review of Consumer Safeguards on Internet
Pharmacy Sites: Hearing Before the House Comm. On Government Reform, 108th Cong.
(
2
0
0
3
)
,
[http://reform.house.gov/UploadedFiles/Online%20Pharmacies%20Final%20Print.pdf].
183 Gilbert M. Gaul and Mary Pat Flaherty, Google to Limit Some Drug Ads, WASH. POST,
Dec. 1, 2003, at A1.
184 Id. In addition, as part of its National Drug Control Strategy, the Bush Administration
recently announced that it too was exploring similar methods for restricting the activities of
rogue sites and that the Administration intended to use web technology to “identify,
investigate and prosecute ... Internet pharmacies that provide controlled substances
illegally.” Press Release, Office of National Drug Control Policy, U.S. Drug Prevention,
Treatment, Enforcement Agencies Take on “Doctor Shoppers,” “Pill Mills” (March 1,
2004), [http://www.whitehousedrugpolicy.gov/news/press04/030104.html].
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legitimate site.185 Because federal and state regulators face many legal barriers when
attempting to exercise jurisdiction over rogue pharmacies based in foreign
countries,186 placing limits on the degree to which search engines, credit card
companies, and shipping entities facilitate prescription drug purchases from rogue
sites may be one of the only ways to control illicit sales by foreign online pharmacies.
State Oversight
As noted above, state boards of pharmacy are primarily responsible for
regulating pharmacy practice,187 although the FFDCA does provide some federal
oversight of pharmacies. Because virtually all states require a pharmacy that sells
drugs in the state to be licensed with the state, a state board of pharmacy traditionally
may exercise regulatory authority over pharmacies and pharmacists located within
the state, as well as those that dispense medication across state lines to citizens within
the state.188
Because each state board of pharmacy sets its own policies with regard to both
online and traditional pharmacies, state pharmacy laws regarding Internet pharmacies
and doctors differ from state to state. While some state laws specify whether or not
prescriptions based on online questionnaires are valid, other state laws fail to address
the issue, thus rendering it difficult for some states to prosecute doctors who
prescribe drugs without performing an in-person evaluation. For this reason, some
critics of the current system have proposed establishing a federal definition of what
constitutes a valid prescription.189
In addition, some organizations have begun to promote uniform national
standards for the industry. For example, the National Association of Boards of
Pharmacy (NABP), whose members include all state boards, is an organization that
185 Inside Washington Publishers, FDA Rep: Internet Pharmacy Certification Could Be Easy
Process, FDA WEEK, Dec. 19, 2003.
186 “The enforcement of a state action or the initiation of a mutual action by a foreign
licensing body is virtually unheard of, making it difficult, if not impossible, for state actions
to have any effect on foreign pharmacies.” National Association of Boards of Pharmacy,
Position Paper on the Importation of Foreign Prescription Drugs 6 (March 2003), at
[http://www.nabp.net].
187 National Association of Boards of Pharmacy, Verified Internet Pharmacy Practice Sites
(VIPPS): Most Frequently Asked Questions (2001), at [http://www.nabp.net].
188 Id. “These requirements allow state boards of pharmacy to order non-resident pharmacies
to stop shipping product into the state. Within the US, such orders can be enforced by the
board of pharmacy where the violation took place, or by mutual action by the board of
pharmacy in the state where the pharmacy is located.” National Association of Boards of
Pharmacy, Position Paper on the Importation of Foreign Prescription Drugs 6 (March
2003), at [http://www.nabp.net]. Foreign shipments of prescription drugs may also violate
state laws if the foreign pharmacy is not licensed in the state, although states often face legal
barriers when attempting to exercise jurisdiction over foreign pharmacies.
189 Inside Washington Publishers, FDA May Back Changing Law to Define Internet
‘Prescription’, FDA WEEK, March 28, 2003. See also, supra notes 177-82 and
accompanying text.
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helps state boards of pharmacy by developing uniform standards on pharmacy
practice. In response to the proliferation of online pharmacies, NABP established the
Verified Internet Pharmacy Practice Sites (VIPPS) program, a certification program
that “identifies to the public those online pharmacy practice sites that are
appropriately licensed, are legitimately operating via the Internet, and that have
successfully completed a rigorous criteria review and inspection.”190 Like U.S.
pharmacies, Canadian pharmacies may also be certified under the VIPPS program,
but only if they do not export drugs to the U.S.191 However, NABP has indicated that
it may extend its VIPPS certification program to Canadian pharmacies that sell to
U.S. consumers if Congress approves drug importation or “if HHS does not stop the
state and local governments that already are reimporting drugs.”192
According to NABP, the VIPPS program was developed in order to improve the
safety of online pharmacy practices and to “provide a means for the public to
distinguish between legitimate and illegitimate online pharmacy practice sites.”193
Although NABP notes that legitimate online pharmacies outnumber rogue sites and
acknowledges that there are many advantages to ordering drugs online, the
Association specifically warns consumers against buying prescription drugs online
without obtaining an in-person examination and valid prescription from a doctor.
Like pharmacy practice, the practice of medicine has historically been regulated
at the state level by state medical boards. According to the Federation of State
Medical Boards (FSMB), which coordinates policy among all state medical boards,
“[t]he primary responsibility and obligation of a state medical board is to protect
consumers of health care through proper licensing and regulation of physicians.”194
Traditionally, states enact laws that regulate the practice of medicine, and state
medical boards implement and oversee state policies.195 If a doctor violates a state
law or regulation, state medical boards generally have the authority to discipline the
doctor through modification, suspension, or revocation of the doctor’s license to
practice medicine in that state. In reality, however, laws regarding medical practice
vary widely in strength and effectiveness from state to state. While some states have
strong laws that explicitly prohibit activities such as prescribing drugs without
conducting an in-person examination, other states have weak laws, lax enforcement,
or both.
190 National Association of Boards of Pharmacy, Verified Internet Pharmacy Practice Sites
(VIPPS): Most Frequently Asked Questions (2001), at [http://www.nabp.net].
191 Inside Washington Publishers, FDA Rebuffs Invitations to Inspect Canadian Pharmacies,
FDA WEEK, May 7, 2004. However, the Canadian International Pharmacy Association
(CIPA), which maintains a certification program similar to VIPPS, allows CIPA-certified
members to export drugs to the U.S.
192 Inside Washington Publishers, Canadian Internet Pharmacies Ask NABP to Certify Their
Operations, FDA WEEK, Sept. 17, 2004.
193 National Association of Boards of Pharmacy, Verified Internet Pharmacy Practice Sites
(VIPPS): Most Frequently Asked Questions (2001), at [http://www.nabp.net].
194 Federation of State Medical Boards, What is a State Medical Board?, at
[http://www.fsmb.org].
195 Id.
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Like NABP, FSMB has developed a specific policy with regard to online
pharmacies and doctors that prescribe drugs over the Internet. According to FSMB’s
model guidelines on the subject, electronic technology “should supplement and
enhance, but not replace, crucial interpersonal interactions that create the very basis
of the physician-patient relationship.”196 To that end, FSMB guidelines declare that
doctors who use the Internet as part of their medical practice should conduct a
physical evaluation of the patient before providing treatment. Although FSMB
recognizes the benefits of online pharmacies, the organization emphasizes that
“[t]reatment, including issuing a prescription, based solely on an online questionnaire
or consultation does not constitute an acceptable standard of care.”197 FSMB further
urges that doctors who prescribe drugs on the Internet should be licensed in all states
in which their patients reside,198 a practice that would subject doctors to the oversight
of the medical boards in each state in which their patients lived.199 These professional
standards, however, are not legally enforceable in the absence of state laws
establishing such requirements.
In addition to establishing policies regarding what constitutes a valid
prescription, some states have explored other methods to deter the diversion and
abuse of controlled substances. For example, at least 18 states have established
prescription drug monitoring programs that track data regarding the prescribing and
use of controlled substances.200 Although such programs enable doctors and
pharmacies to check whether patients have been seeking controlled substances from
other doctors and pharmacies, such programs may be circumvented if patients seek
controlled substances from illegal Internet pharmacies.
IV. Conclusion
The current legal framework for regulating online pharmacies and doctors is a
patchwork of federal and state laws regarding controlled substances, prescription
drugs, pharmacies, and the practice of medicine. Although many doctors and
196 Id.
197 Federation of State Medical Boards, Model Guidelines for the Appropriate Use of the
Internet in Medical Practice (2002), at [http://www.fsmb.org].
198 Id.
199 FSMB is not the only medical organization to promulgate standards of professional
conduct regarding the prescribing of drugs over the Internet. Several other professional
associations, such as the American Medical Association (AMA), have also established
policies regarding the safe practice of online medicine. For example, the AMA guidelines,
like the FSMB guidelines, state that doctors should perform a physical evaluation of patients
before prescribing medication and should be licensed in every state in which their patients
reside. The AMA guidelines further advise against prescribing drugs to patients solely on
the basis of online communications such as questionnaires. American Medical Association,
Guidance for Physicians on Internet Prescribing (H-120.949) (2003), at [http://www.ama-
assn.org/].
200 Inside Washington Publishers, FDA Touts Efforts Against Illegal Diversion of Controlled
Substances, FDA WEEK, March 5, 2004.
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pharmacies who use the Internet prescribe and dispense drugs in a responsible, safe,
and legal fashion, others have exploited gaps in the current system to prescribe and
dispense potentially dangerous quantities of highly addictive prescription drugs. To
combat such abuses, legislators and interest groups have proposed an array of
solutions, including establishing a federal definition of what constitutes a valid
prescription, requiring doctors to conduct in-person examinations, mandating that
online pharmacies disclose identifying information about themselves and the doctors
who work for them, establishing state prescription drug monitoring programs, giving
state prosecutors the authority to seek nationwide injunctions against rogue sites,
educating consumers about the potential dangers of buying drugs online, and
establishing certification programs to identify legitimate online pharmacies.
Meanwhile, the debate about importing prescription drugs continues as well.
Although the FDA maintains that it cannot guarantee the safety of imported drugs,
many U.S. consumers, in search of affordable prices, continue to purchase such drugs
in increasing numbers. As a result, legislators and interest groups have suggested a
variety of changes to current law, including encouraging the development of more
generic drugs, negotiating lower drug prices through bulk purchase programs,
increasing prescription drug insurance coverage, allowing drug imports but restricting
ports of entry, establishing state pilot programs, allowing only certain drugs to be
imported, educating consumers about the dangers of imported drugs, and allowing
drug imports from approved Canadian pharmacies only.