Legal and Ethical Consideration in Marketing, Product Safety, and Intellectual Property Terra Bradley
LEG500, Law, Ethics, and Corporate Governance

Professor Lateefah A. Muhammad

17 March 2014

Legal and Ethical Considerations in Marketing, Product Safety, and Intellectual Property

In this paper I will identify three ethical issues relating to marketing and advertising, intellectual property, and regulation of product safety. I will argue against Direct-to-Consumer (DTC) marketing by drug companies. Next I will determine who regulates compounding pharmacies under the current regulatory scheme, what the Food and Drug Administration (FDA) could or should have done, and whether the FDA should be granted more power over compounding pharmacies. I will decide whether PharmaCARE’s use of Colberian intellectual property would be ethical in accordance with Utilitarianism; Deontology; Virtue Ethics; my own moral and ethical compass. Afterwards, I will analyze the way PharmaCARE uses U.S. law to protect its own intellectual property while co-opting intellectual property in Colberia. Then I will suggest at least three ways the company could compensate the people and nation of Colberia for the use of its intellectual property and the damage to its environment. I will compare PharmaCARE’s actions with those of at least one real-world company whose creativity in skirting legal technicalities led to ethical lapses and financial loss. I will also determine the success PharmaCARE and WellCo shareholders would have in suits against the companies. I will determine whether or not PharmaCARE lives up to its brand. Finally I will recommend at least three changes PharmaCARE can make to be more ethical going forward.
“Ethical Issues” According to Investopedia.com “business ethics are implemented in order to ensure that a certain required level of trust exists between consumers and various forms of market participants with businesses”. Ethical issues relating to marketing and advertising could be false advertisement. False advertisement can mislead a consumer; a consumer that place trust in what they or being told about a product; in which in return they base their decision on whether or not they will use the product. Ethical issues in regards to intellectual property could be plagiarism as well as copyright infringement. Plagiarism is taking ownership of a thought or piece of work that belongs to someone else; it is the act of taking credit for someone else’s work. Copyright infringement is the act of using works protected by copyright law without obtaining permission. Ethical issues correlated to regulation of product safety are when a company opt to label incorrectly and bypass approval from the Food and Drug Administration. In the PharmaCare case; there were signs of ethical issues; particularly with the marketing and advertising and regulation of product safety. PharmaCARE present their company as a caring, ethical and well-run company that produced high-quality products that saved millions of lives and enhanced the quality of life for millions of others. They launched an initiative, We CARE about YOUR world, pledging its commitment to the environment through recycling, packaging changes and other green initiatives, despite the fact that the company’s lobbying efforts and PAC had successfully defeated environmental laws and regulations, including extension of the Superfund tax. The company claims that it enhances the quality of life for millions; but the fact is that the company has a large manufacturing facility in Colberia; whose land has a low standard of living; the workers work for a mere one dollar a day; along with carrying baskets up to fifty pounds while walking five miles in and out of the jungle. Majority of the population lives in primitive huts with no electricity or running water. The presence of PharmaCare has resulted in destroyed habitat and endangered native species. It appears that the quality of life is directed to the luxurious lifestyle the PharmaCARE’s executives have been able to sustain. PharmaCARE bypassed the Food and Drug Administration by establishing a wholly-owned subsidiary called CompCARE, to operate as a compounding pharmacy to sell new formulation to individuals on a prescription basis. Although compounding pharmacies are not supposed to sell drugs in bulk for general use; CompCARE started to market its services and the availability of AD23; the reformulated drug; to consumers and directly to hospitals, clinics, and physician offices. The company showing its lack of ethics encouraged doctors to fax in lists of bogus patient names; in order to avoid such technicality. CompCARE was made aware of reports showing the correlation of people who received the AD23 and heart attacks; and against ethics, did nothing. They fail to report this important data to the consumers, thus not allowing the consumer to make a fair and well thorough decision on whether or not they wanted to use the product. These are direct violations of Direct-to-Consumer pharmaceutical advertising; which mandates that the “advertisements must not be false or misleading; present a “fair balance” of information describing the risks and benefits of the drug, include facts that are material to the product’s advertised uses, and the inclusion of a brief summary that discloses every risk described in the product’s labeling” (www.ncbi.nlm.nih.gov). In regards to intellectual property; PharmaCARE ethical issue would be directed to the indigenous people. “It is difficult for indigenous peoples to obtain a patent on their ethno biological knowledge for a number of reasons. All of the prerequisites for patentability; due to the fact they are grounded in Western notions of intellectual property; make it easier for Western pharmaceutical companies to obtain a patent on a modification of indigenous ethno biological knowledge than for indigenous communities (Halber, Ingulli, 2012, pg. 351). This is the case of PharmaCARE versus the Colberians. “Direct-to-Consumer Marketing” Direct-to-Consumer marketing is what happens when a company markets a product or service directly from the seller to the consumer; without the middle man such as radio ads, public displays or television commercials. Direct-to-Consumer marketing in the pharmaceutical world is the most popular type of health communication that the public sees. The Food and Drug Administration regulates the Direct-to-Consumer pharmaceutical marketing; but critics has stated the rules are too relaxed and not properly mandated. According to Pharmacy and Therapeutics; a peer-reviewed journal for managed care and hospital formulary management: “the United States and New Zealand are the only countries that allow Direct-to-Consumer pharmaceutical advertising that includes product claims” For those who found themselves against the Direct-to-Consumer pharmaceutical advertising also find their selves facing a dilemma of violating the First Amendment; free speech. There is however a balance called the Central Hudson test. The Central Hudson test determines whether a ban on commercial speech is authorized. The test examines if the advertising is misleading; if banning directly advances in great measures a government interest; and whether the government’s interest could possibly be obtained through a lesser restrictive route. There are strong pros and cons regarding Direct-to-Consumer marketing. On the positive side this method could inform, educate patients; encourage patients to get in contact with a clinician; promotes dialogue between patient and health care providers which could lead to a strong relationship; encourage patient compliance; reduce underdiagnoses and under treatment of condition; remove stigma with some diseases and encourage product competition and lower prices. The cons which was evident in the PharmaCARE’s case includes the possibility of misinforming patients; overemphasizing drug benefits; risk of promoting new drugs before safety profiles are fully known; chance of manufacturing a disease to encourage drug over-utilization; inappropriate prescribing; strain relationships with health care providers; increase costs; and not being rigorously regulated. In the PharmaCARE’s case we saw the lack of informing patients of the true risks for taking the reformulated drug AD23. We also saw the push to the hospitals, clinics, and physician offices with claims of potentially slowing down the progression of Alzheimer’s disease. The company persuaded doctors to create bogus patient names; and because it is not rigorously regulated the company was able to maneuver around the Food and Drug Administration and established a wholly-owned subsidiary; CompCARE. Although the pros are good and it seems there’s a balance of both sides, due to the PharaCARE case I would say I would be against the Direct-to-Consumer marketing. “Compounding Pharmacies” “Compounding pharmacies are pharmacies that are licensed to mix or compound chemical ingredients into a finished medication ready to be use by a patient, based on a prescription ordered by a doctor or a legal authorized prescriber. Federally the Food and Drug Administration regulates all commercial pharmaceutical manufacturing; however it is the States who are the primary regulator of pharmacies, including community drug stores, large chains, in-store pharmacy counters and specialty pharmacies” (www.ncsl.org). Each state has laws and regulations which provide standards and requirements. There have been issues concerning compounding pharmacies. One is the distinction between a compounding and manufacturing; on whether it’s clear on if a compound drug order actually meets state-regulated standard or if it cross into a manufacturing regulatory category. Another issue is the inspection of facilities; on the frequency of the inspections and the responsibility of the inspection as far as who inspects. Also the issue of enforcement; meaning which agency; state or federal, is charged with taking action when violations or omissions happens. In addition are records of inspections public or accessible to policymakers and federal and state regulatory entities. According to Food and Drug Administration “FDA has historically exercised its enforcement discretion in a manner that defers to the states, as the regulators of the practice of pharmacy, to serve as the primary regulators of the practice of pharmacy compounding. FDA’s focus in recent years has been on drug manufacturing that operates under the guise of pharmacy compounding” (www.fda.gov). In the PharmaCARE case the Food and Drug Administration; the company created CompCARE to avoid the Food and Administration enforcements. I believe the Food and Administration has a balanced relationship with the States; allowing the States to have control over what goes on within its’ jurisdictions. If CompCARE wasn’t created, I believe the Food and Administration would had stepped in an enforced the company to discontinue until the drug being compound were verified and approved. “Colberian’s Intellectual Property” “In utilitarianism, the right way to behave in a given situation is to choose the alternative that is likely to produce the greatest overall good” (Halbert et al. 2012 pg.14). “In an ethical theory, utilitarianism asks us to compare the harms and benefits of an action not just for the decider, but for all who will be affected by the decision” (Halbert et al. 2012 pg.14). “Deontology is “marked by steadfastness to universal principles-for example, respect for life, fairness, telling the truth, keeping promises-no matter the consequences” (Halbert et al 2012 pg.18). Virtue ethics focus on what we as humans care capable of being, how we cultivate the habits of good character that will naturally lead us to our fullest potential. Ethic of care is based on the notion of caring for others. In regards to the PharmaCARE’s use of Colberian intellectual property; the company’s actions would not be deemed ethical in utilitarianism, deontology, virtue ethics, and ethics of care nor my own ethical compass. There was no respect for the Colberian’s life nor no fairness to compensation. The choices made did not produce overall good; only to the executives who lived luxurious. I can’t see good character in allowing workers to live in poor living conditions and if the company cared then the workers simply wouldn’t have been. I personally, ethically wouldn’t had been able to use the resources so vain and selfishly; without helping the community that gave me the resources to make a difference and make a profit. “Intellectual Property” “In 1992, the United Nations hosted a Conference on Environment and Development in Brazil that resulted in the United Nations Convention on Biological Diversity which commits signatory countries to conserve biodiversity and equitable share resulting benefits. The signatories also agreed that the benefits of utilizing biodiversity, including technology, should be shared with the source country. Thus has been ratified by one hundred and sixty-eight of the one hundred and seventy-seven countries, excluding the United States” (Halbert et al, 2012, pg. 350). PharmaCARE used the United States law to protect its own intellectual property. One way is by patents. Patent is a legal certificate giving an inventor exclusive rights to prevent another person from producing, using, importing, or selling their invention for a specified period of time. A plant or human cell can’t be patent but the discoverer may obtain a patent on a biological matter in a purified, isolated, or changed form. One problem in given a patent to an indigenous community is that the same cultural and ethno biological knowledge is often found among several distinct indigenous societies making it unfair to grant one and not the other. “Western pharmaceutical companies that isolate an active chemical in a plant and create a genetically engineered plant or animal can receive a patent while indigenous peoples, who use the natural form of the plant cannot” (Halbert et al, 2012, pg. 352). This is what happened in the PharmaCARE’s scenario. “Compensation” Three ways PharmaCARE could compensate the people and nation of Colberia for the use of its intellectual property and the damage to its environment is in the way of recovery. They could first help my increasing the salary of each worker; allowing the worker to have a way to get out of hardship. They could also compensate the workers by provided tools that could help the process, like transportation, running water and electricity. They could had worked with the people to find solutions on saving the environment. This might even mean cutting down their requirements and demands of the natural elements. “Everyone should enjoy the right, reaffirmed in article twenty seven of the Universal Declaration of Human Rights, freely to participate in the cultural life of the community, to enjoy the arts, and to share in scientific advancement and its benefits while at the same time having an equal right to the protection of the moral and material interests resulting from any scientific, literary or artistic production” (Halbert et al, 2012, pg. 356). “PharmaCARE” Our text provided us with the example of Enron, whom like PharmaCARE, actions in skirting legal technicalities led them to an ethical lapse and financial loss. Enron misrepresented earnings on their report which made investor’s invest under a misguided sense of trust and knowledge. The executives embezzled funds that were funneled in from investments while they reported fraudulent earnings to investors, attracting new investors. This led to the company’s bankruptcy; and a loss exceeding over seventy billion for investors. Also the fraudulent actions costs both trustees and employees around two billion dollars as a result of misappropriated investments, stock, and pension funds, due to the government regulation and the limited liability status of ENRON Corporation, only a small amount of funds were returned. This is similar to the behavior of the Executives living lavishly and the employees getting stuck with bare to none; the profit to bankruptcy is comparison to PharmaCARE stock price reaching three hundred dollars per share to PharmaCARE and WellCo’s stock price plummet during the same time the AD23 was linked to over two hundred cardiac deaths. This is also an example of being misled as Enron was to their investors, PharmaCARE was to its consumers. “PharmaCARE and WellCo” The success PharmaCARE and WellCo shareholders would have in suits against the companies could be successful. Under the Model Business Corporation Act in order for a derivative suit to be started; there has to have been harm to the corporation but the board of directors opted not to take appropriate measures against the wrongdoers. The eligible shareholder would first file a demand on the board. The board can at that point reject, accept or take no action. After ninety days, if the demand is rejected or not acted on then the shareholders may file suit. If the board accepts then the corporation would file suit. Each state varies with the Model Business Corporation Act for it is not a law but more of a model statute suggested for passage by different jurisdictions. If won the proceeds are awarded to the corporation and not the individual shareholder. Due to PharmaCARE and WellCO actions of fraudulent activities, plummeted stock, treatment to the Colberians, fake names of patients from doctors and bypassing Food and Drug Administration regulations by establishing CompCARE, I feel if a suit was started the chance of winning would be greater than losing. Based off of this I do not think PharmaCare lives up to its brand. Every marketing concept that made the company shine proved to not be factual. They harm and hindered more than help. They did not portray a trust worthy establishment. They fail to disclose vital information concern potential health hazards to their consumers. The displayed unethical behavior with the Colberians. They claimed to be a part of helping the environment but yet they are the main reason Colberia habitat and environment is destroyed. The three things PharmaCARE could do moving forward to be more ethical conscience would be to think about others in their actions. One, they should take care of the Colberian people by helping them restore what that have been the sole cause of destroying; their habitat. They can enhance the way of living by providing more salary, equipment, running water and electricity. The company should disclose all vital information that would be needed for a consumer to make an educated decision on whether or not they want to use the product. Last the company should adhere to all guidelines and regulations and stop immediately taking short-cuts as well as owning up to the company’s part of the deaths caused by their product.

References

Halbert, T., & Ingulli, E. (2012). Law & ethics in the business environment (7th ed.). Mason, OH: South-Western Cengage Learning.
Lindon, J.L. (2012). Who Regulates Compounding Pharmacies? Retrieved 16 March 2014 at link: http://www.medscape.com/viewarticle/774501
Noordin, M.I. (nd). Ethics in Pharmaceutical Issues. Retrieved 16 March 2014 at link http://cdn.intechopen.com/pdfs-wm/31746.pdf
State Regulation of Compounding Pharmacies retrieved 16 March 2014 at link: http://www.ncsl.org/research/health/regulating-compounding-pharmacies.aspx
United States Food and Drug Administration (nd). Federal and State Role in Pharmacy Compounding and Reconstitution: Exploring the Right Mix to Protect Patients. Retrieved on 16 March 2014 at link http://www.fda.gov/NewsEvents/Testimony/ucm115010.htm
United States Environmental Protection Agency (nd). CERCLA Overview. Retrieved on 22 Feb 2014 at link http://www.epa.gov/superfund/policy/cercla.htm.
United States National Library of Medicine National Institutes of Health. Direct-to-Consumer Pharmaceutical Advertising. Retrieved 16 March 2014 at link http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3278148/#b15-ptj3610669