On November 6, 2015, Abbott Laboratories and its diabetes care units secured a preliminary injunction against multiple pharmacies, distributors and associated individuals engaged in the sale of gray market Abbott FreeStyle diabetes test strips designed for sale internationally to U.S. consumers.
In the trade-infringement action brought under the Lanham Act in the United States District Court for the Eastern District of New York, Abbott prevailed in proving that the likely confusion caused by differences in its international and domestic test strips, as well as the interference with quality-control prerogatives, warranted enjoining the further domestic sales of the international strips. Although the domestic and international test strips were identical in design, testimony and exhibits introduced as evidence established eight key differences in packaging and instructional inserts that the court concluded were capable of confusing the American public.
First, the U.S. packaging contained National Drug Codes which pharmacies used for reimbursement from purchasers’ insurance companies. Insurers, in turn, submitted claims for contractually agreed-upon rebates, an arrangement that resulted in a higher domestic list price.
Second, the instructional inserts for the U.S. strips directed users to three test sites on their bodies, while the international versions listed the same three, plus four other sites. These differences were driven by FDA’s limitation of the number of sites based on its determination of insufficient accuracy of results from the four additional sites.
Third, were the language differences in packaging and instructional inserts, with some overseas versions destined for certain markets not including the English language.
Fourth were various symbols with no accompanying explanatory text which were not destined for U.S. markets, because FDA does not approve of the use of symbols for consumer labeling.
Fifth, measurements for international products were listed as millimoles per liter and in Celsius, while U.S. products were listed in FDA-directed U.S. units of milligrams per deciliter and Fahrenheit.
Sixth, the written warnings “Do no reuse” and “For in vitro diagnostic use” were omitted from the international products.
Seventh, although FreeStyle strips were approved for use internationally in any meter with FreeStyle technology, domestic products, as stated on U.S. packaging, were approved only for specific meters.
Eighth, domestic packaging prominently states a toll-free telephone number for users’ questions, while the international product listed a foreign telephone number. Importantly, Abbott’s U.S. call centers were manned by operators trained only in the domestic product. Consumer calls were also logged, categorized, tracked and analyzed for trends and, where necessary, for recalls directed to the country or region to which affected strips were directed.
As is customary with other drug and medical device manufacturers, Abbott’s ongoing security efforts involved making “buys” from distributors and wholesalers. Beginning in 2013, Abbott began detecting international strips in its purchases, and the number spiked in late 2014-early 2015. By then it had already notified FDA’s Office of Criminal Investigation, which had been already investigating one or more of the diverters detected by Abbott.
In the final analysis, the Court found that the differences between international and domestic products were material and likely to confuse consumers, and rejected the diverters’ assertion that they openly disclosed the international aspect of the products to their purchasers. In addition, the Court found that these differences interfered with Abbott’s quality control processes and potentially impeded controlled recall efforts, thereby making it likely for Abbott to succeed on the merits of its Lanham Act claim. Moreover, the Court found that Abbott risked losing good will and suffering reputational harm when a domestic user received international strips. The Court also rejected the defendants’ assertion that Abbott delayed in bringing the lawsuit, noting that it had been pursuing non-judicial actions to cease the infringement, such as cease-and-desist letters before resorting to judicial intervention. Finally, the Court found that the balance of hardships and the public consequences of allowing product to continue to be sold warranted the preliminary injunction.
The circumstances of this case underscore the damage that gray market can cause to consumers and manufacturers of drugs and medical devices. The International Trademark Association has notes estimates of billions of dollars in revenue per year lost to gray market diversion in the United States and worldwide, along with the potential for negative consumer experiences that damage the goodwill and reputation of a brand. The Abbott Court’s analysis lays out nicely the issues surrounding consumer protection, product integrity, quality control impediments, service and warranties, and recall notifications. Gray market diversion causes financial harm by impacting rebate agreements and undercutting the prices of, and sales by, authorized domestic distributors through the sale of goods at lower price points. The only way to fend off gray marketers is to shore up the supply chain, monitor the movement of product, ensure quality control procedures are in place, and notify the authorities when product integrity is potentially compromised through the sales of gray market goods.