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Project

Shades of grey: Analyzing shifts across the white, grey, black and criminal segments of the pharmaceutical market and the challenges of their control

The proposed project is intended I) to identify the market segments of the Belgian and Indian pharmaceutical market on the basis of their legal status (thus from fully legal to fully criminal) and the legal nature of the offence or violation at hand (e.g., criminal law offence or violation under intellectual protection (IP) law, other civil or administrative law); II) to analyze actors’ and products’ shifts across these segments; and III) to assess the resulting challenges for the control of such market. By so doing, the project goes beyond the state of the art in three ways:

1) Thirty years after John Braithwaite’s (1984) Corporate Crime in the Pharmaceutical Industry, the project will revitalize research on the topic. Braithwaite (1993: 12) concluded his seminal study with the statement: “the pharmaceutical industry arguably has the worst record of serious corporate crime in any industry.” Yet, subsequently, only a few studies in criminology have dealt with this issue (for a rare exception see, e.g., Vander Beken & Balcaen, 2006; Vander Beken, 2007). Even leaving aside the public health implications, the economic and societal relevance of the pharmaceutical market and its related crime can hardly be overestimated. Worldwide, the pharmaceutical market generated revenue of over one trillion US dollars in 2014, almost tripling its revenues since 2001 (Statista, 2016). The European pharmaceutical market in 2013 accounted for 27.4% of world sales; its market value was estimated as €248 billion. As payments made by statutory health insurance systems comprise 47% (€119bn) of the total value of the European market (EFPIA, 2014), any increase in cost due to corporate misconduct or other factors has a direct impact on the countries’ financial resources and, ultimately, on public health (WHO, 2016). With revenues amounting to US$13 billion in 2009, the Indian market ranks tenth globally in terms of market value. However, as price levels are low, it is ranked third in volume (McKinsey, n.d.). India is also the world’s largest supplier of generic drugs and has been described by Médecins sans Frontières (Karunakara, 2012) as the “pharmacy of the developing world.”

2) The project will also shed light on forms of pharmaceutical crime and illegality that did not exist when Braithwaite conducted its study: namely, the production and distribution of falsified and/or counterfeit or other illegal medicines. The production and distribution of these medicines range from outright crime, when the medicines are falsified or illegally produced to “mere” violations of intellectual property rights or trademarks. The expression “counterfeit” technically refers to the latter group, but it was originally and is still frequently used to cover the whole spectrum of criminal and civil law violations (WHO, 2008). Ten years ago, the Council of Europe (2005) hypothesized that counterfeit (and falsified) medicines affect 5% to 7% of the global pharmaceutical market and, on the basis of European Commission’s data, that the corresponding share of European market was 3%. The World Health Organization (WHO, 2015) currently estimates that 50% of the drugs for sale on the internet are fake and puts the annual death toll from falsified and counterfeit drugs at around one million. Whereas the empirical basis of these estimates is unclear,3 there is no doubt that falsified, counterfeit and other illegal medicines have the potential to generate very serious harm to millions of people. Some authors speak of a potential “macroeconomic pandemic” (Wertheimer and Norris, 2009) and others of “a crime against humanity” (Karunamoorthi, 2014). Despite their evident economic and public health relevance, the production and distribution of falsified and/or counterfeit medicines have so far been object of limited empirical criminological analysis. A search done in January 2016 on Criminal Justice Abstracts, criminology’s largest online database, with the keyword “counterfeit medicines” delivered only 17 items, none of which had been published by criminologists or in criminology journals. Through our searches we identified four relevant publications: Vander Beken et al. (2007), Dégardin et al. (2014) as well as two articles by non-criminologists in a French criminology journal (Fauran, 2011 and Frahi,2014). None of these articles are based on primary data. Exploratory research is being conducted by two EU-funded consortia (“Fakeshare” and “Fakecare”), largely composed of practitioners but also involving a few criminologists.

3) Through the case study of the Belgian and Indian pharmaceutical market, the project is also intended to contribute to more general theoretical debates in criminology, social sciences and public policy by a) singling out the conceptual and legal differences, but also the frequent, albeit not complete, overlap between crime and other forms of illegality; b) analyzing players’ and products’ frequent shifts across market segments characterized by different shades of (il)legality, and c) reconstructing the supra-national and state policies involving different types of laws as well as more “hybrid” forms of regulation (Braithwaite, 2003) through which the segments and shifts are controlled, and d) developing the theoretical and policy implications of such differences, partial overlap, shifts across shades of legal status, policies and hybrid regulation. The project draws from the assumption that numerous other illegal markets are also part of broader markets where players and products can shift across segments characterized by different legal statuses. Thus, we argue below that the project analytical framework and findings can provide an innovative contribution particularly to the literature on organized crime and illegal markets. Drawing on different literatures, we also sketch the project conceptual framework. Despite the decade-old lessons of labelling theory (e.g., Becker, 1963), critical criminology (e.g., Taylor, Walton & Young, 1975) and white-collar crime research (Sutherland, 1949), most criminologists either focus on a small set of ordinary crimes or tend to use the key word of “crime” loosely, disregarding the distinction between “criminality” and “illegality.” This disregard is particularly evident in the literature on organized crime and illegal markets. In the early 1970s, when U.S. criminologists revolted against the ethnically-loaded and highly formalized official understanding of organized crime, they proposed the concept of “illegal enterprise” (Haller, 1990) as alternative.6 Although originally meant to replace “organized crime,” the phrase “illegal enterprise” has with time become a synonym for organized crime (van Duyne, 1997), thus further conflating the differences between criminality and illegality (see Paoli and Vander Beken, 2014). Moreover, notwithstanding the purported focus on illegal enterprises, most empirical research has since then focused on drug markets, such as those for heroin and cocaine, which have been considered as exemplars of illegal markets but are in reality an extreme, rare, case of a 100% criminal market. Because of the conflation of criminality and illegality and the focus on heroin and cocaine in empirical research, criminologists and, to a lesser extent other social scientists, have not yet fully explored the nuances and implications of legal status. Nor have they appreciated that players and products can shift across market segments that are characterized by different legal statuses, or can violate different criminal and non-criminal legislation simultaneously and as a result of those shifts. Even in studies of illegal rather than fully criminal markets, such as those for cigarettes (von Lampe, 2011), weapons (Feinstein and Holden, 2014), and gambling (Spapens, 2014), criminologists have often treated these markets as a separate “criminal” appendix to a larger legal market. Economists have been more active in this arena, both in the conduct of case studies and the development of formal models and some publications across disciplines have attempted to typify markets with illegal characteristics (e.g. Reuter, 1985; Feige, 1990; Naylor, 2003; Beckert and Wehinger, 2013). In particular, economists have stressed the distinction between the “white,” “grey,” and “black” segments of the markets for cigarettes, weapons, gambling, and medicines. These terms are not subject to hard-and-fast definitions (see OECD, 2002 on the many ambiguities), but according to the economic literature of commerce (e.g., Restani, 1987) the following distinctions can be made. “White” market segments are wholly legal; “grey” market segments violate terms of distribution, but neither the channels nor products are illegal, per se, e.g., as in the case of a branded electronic, automotive, or cosmetic product that is distributed through channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer and “black” market segments involve illegal trade, but not necessarily illegal products (e.g., the black market for cigarettes). If the products are also illegal, either thoroughly criminal products (e.g., heroin) with no legitimate use or falsified legal ones, economists speak of “criminal” market segments. Whereas these definitions represent the starting point for the project conceptual framework, the pair “black” and “criminal” does not precisely distinguish between criminal law offences and other violations. In some cases, as the sale of products on internet, there also seems to be an unregulated market segment. The pharmaceutical market is a very suitable case to study the conceptual differences but also the frequent, albeit not complete overlap between crime and other forms of illegality, to identify the resulting market segments and to inform the theoretical debate on the concept of crime. As already mentioned, it has a large white segment. It also has a considerable grey segment. In addition to unauthorized sales via online pharmacies (OECD, 2008), in Europe there is an official grey or “parallel” segment. Parallel distributors buy products marketed by the original manufacturer at a lower price in one country and sell them at a higher price in another country. Whereas big pharmaceutical companies complain about parallel trade (EFPIA, 2014) and stress the risks for public health, a 2005 study of only four EU countries found that parallel distribution generated direct savings to patients and social health insurance systems in excess of €440 million in 2004 (EAEPC, 2016). As already mentioned, the pharmaceutical market also has a long record of violations of various civil and criminal laws, thus creating black and criminal market segments (Braithwaite, 1984).8 Both these segments have grown due to counterfeit and falsified medicines. In both criminology and economics, the different segments of the market for pharmaceuticals and other goods and services have been treated as self-contained with little interaction between them. However, recent research on the doping market carried by the project promoter (Paoli & Greenfield, 2015) and a new interpretation of the literature (e.g., von Lampe, 2006) suggest that at least some market players move across these different segments, constantly – knowingly or unknowingly – shifting positions vis-à-vis legal status, respecting, omitting or violating obligations belonging to different law branches and possibly adjusting their modus operandi across market segments. These recent studies indicate that products too, take on different legal statuses along the supply chain, sometimes even simultaneously depending on the location of the production and the distribution, the status of the supplier and the final users. To stress these ambiguities, Paoli and Donati (2014) and Paoli and Greenfield (2015) recently conceptualized the market for doping products as a “quasi-illegal market,” that is a market characterized by its players’ and products’ shifts across different shades of (il)legality. Whereas the economic relevance of these quasi-illegal markets have grown, not least due to globalization, these markets, the shifts players and products can make across market segments with different shades and types of illegality and the hybrid forms of regulations with which they are controlled have not yet been subject to detailed analysis. It is this gap that the proposed project, focusing on the pharmaceutical market, seeks to address. On this basis, inspired by Braithwaite’s (2000) call for the opening up of criminology to the broader field of regulatory studies, it also aims to contribute to the broader theoretical debate of what is and should be crime, and how best to tackle it.

Project objectives
Using the pharmaceutical market for a life-style and a life-saving class of medicines in Belgium and India, the proposed project is intended to fulfil the following objectives:

1. To define the supra-national and national legislation that set the boundaries of the different market segments for the selected countries and medicines

2. To estimate the revenues of the white market segment and “roughly” assess the size of the other ones, including the grey, black and criminal segments for the selected countries and medicines

3. To develop a typology of the players involved in the different market segments, with specific attention to the grey, black and criminal segments

4. To analyze the players’ modus operandi, including, if applicable, the use of “accompanying” illegal activities (Greenfield and Paoli, 2013), such as violence, corruption and fraud in all market segments

5. To analyze and thus categorize, according to market segments the products sold via online pharmacies

6. To analyze the products’ and players’ shifts across market segments and to identify the
conditions and motives that make such shifts possible

7. To describe the contents and goals, related hybrid forms of regulations and perceived effects of supra-national and state policies (including legislation) developed and implemented to regulate and control the grey, black and criminal segments of the market

8. To develop the theoretical implications of such analyses for the future of criminology.

9. To develop the policy implications of the previous analyses, including about the “optimal” combinations of white, grey, black and criminal market segments for the selected countries and medicines, depending on the legal interests to be prioritized (e.g., companies IP, market competition, safety, access to medicines in poor countries, etc.).

Date:1 Sep 2017 →  1 Sep 2021
Keywords:Geneesmiddelen, Medicines, Counterfeit
Disciplines:Criminology
Project type:PhD project