educational

Legal Issues Associated With Online Pharmacies: Part 2

Larry Walters & Heather Schwarz

In our first installment, we looked at the legality of selling drugs online, problems associated with online pharmacies, the impact of anti-spam legislation, and more. In today's conclusion, we'll examine the legal issues surrounding advertising online pharmacies and the future of this business model:

Advertising Online Pharmacies
The vast majority of United States-based webmasters involved in the online pharmacy industry are not involved in the manufacture or actual distribution of pharmaceutical medicines. Their participation comes in the form of marketing and promotion of established pharmacy operations. Thus, an evaluation of the liability associated with advertising such operations is appropriate.

The First Amendment provides significant protection towards advertising as a form of commercial speech. The government’s ability to regulate advertising of online pharmacies is not coextensive with its ability to regulate the distribution of Internet-ordered prescription drugs, themselves. The prevailing test that has continuously been used by the courts to evaluate the legality of any particular advertising equation is known as the Central Hudson Test. Under that Test, the court’s first duty is to determine whether the First Amendment applies at all. In doing so, the proper question is whether the advertisement concerns a lawful activity and is not misleading or fraudulent. That produces an interesting conundrum for the future reviewing courts, since the legality of online pharmacies in the United States is currently the subject of proposed legislation and heated controversy. Moreover, if the online pharmacy is legal in the jurisdiction where it is licensed, that may suffice for purposes of this prong of the Central Hudson Test, although that remains undetermined.

Once it is determined that the First Amendment applies, the courts employ a three-part analysis that allows commercial speech to be restricted only if: 1) the government’s interest in doing so is substantial; 2) the restrictions directly advance the government’s asserted interests; and 3) the restrictions are no more extensive than necessary to serve that interest. Attempts by the federal government to regulate the advertisement of online pharmacies would set a dangerous legal precedent, and potentially violate the Free Speech rights of advertisers and affiliates who are promoting a service that is legal and licensed in its forum jurisdiction. Thus far, no controlling legal precedent exists on the issue of advertiser liability in this still developing business model.

In attempting to address its concerns over advertising foreign pharmacies, the Department of Justice could use the aiding and abetting or conspiracy laws as an underlying theory for criminalization of such marketing and promotion. Although there is little legal precedent supporting the theory that mere advertising satisfies the legal standard for either aiding and abetting or conspiracy, the government is currently floating the aiding and abetting theory as a potential means to control the proliferation of online gambling advertisements currently blanketing the Internet. The online gambling industry is currently in a legal showdown with the Justice Department over the legality of both advertising, and the underlying gambling conduct which often takes place in cyberspace using licensed, offshore casinos. The United States Attorney’s Office in the Eastern District of Missouri recently circulated a warning letter to the National Association of Broadcasters, and other media trade groups, advising that continued airing of advertisements promoting online gambling activities will be seen as a violation of the Wire Act, through aiding and abetting. Industry leaders immediately refuted that analysis, invoking the First Amendment protections afforded to advertising; however no court action has been taken thus far. A number of subpoenas have been issued in connection with an investigation emanating from the Eastern District of Missouri, however no indictments have been returned nor charges filed pursuant to that investigation. Turning back once again to the online pharmacy industry, it is not difficult to imagine the same theory being used as a means to reign in advertisers of allegedly illegal pharmacies, especially those located in the United States. The online pharmacy industry presumably will be closely following the online gambling advertising crisis as those events play out.

Online pharmacies often operate similar to multi-level marketing firms by encouraging individuals to set up affiliate websites to help promote their products. But when users want to complain or otherwise contact the distributors, they usually have no one to contact. Many of these affiliate sites are not licensed, whereas the legitimate pharmacies will prominently display a seal indicating they meet state licensing requirements. Consequently, many storefront pharmacies have temporarily stopped selling prescription drugs online because of the recent FDA trend in prosecuting online pharmacies.

A major United States pharmacy trade group, The National Association of Boards of Pharmacy (“NABP”), is pressuring Web-based search engines to ban advertisements from unlicensed drug retailers, in an effort to clean up ads for prescription drugs that can be ordered over the Internet without a doctor’s consent. Paid search terms have emerged as an invaluable source of revenue for the online-advertising industry as companies have opted to bid for the right to be associated with specific key words. Paid searches have produced what many consider a taxing side effect for the online-pharmacy industry. Rogue Internet pharmacies – those that either allow customers to receive a doctor’s prescription online without a physical consultation, or do not require a prescription at all – have bid aggressively for preferred placement on Internet search engines, essentially out-pricing legitimate competitors. Since the rise of paid search programs, regulators and the courts are demanding greater accountability from search engines, which have radically revived the online ad market. In compliance with that, both Google and Yahoo! have stated that they would hire third-party companies to evaluate and verify online pharmacies before allowing them to advertise on their sites.

The FDA recently stated the release of the new direct-to-consumer drug advertising guidelines should be released shortly. The new guidelines are expected to revise the rules for listing side effects of prescription medications in print advertising, and may also increase what is required to be disclosed in Internet ads, but other changes remain uncertain amid pressure from many consumer groups to tighten advertising requirements and numerous media organizations to ease them. A draft of the proposed guidelines can be viewed on their Web site, http://www.fda.gov/cder/guidance/5669dft.pdf and http://www.fda.gov/cdrh/comp/guidance/ 1513.pdf.

The Future of Online Pharmacies
According to an article in TIME Magazine, Americans are spending more on prescriptions than individuals in any other developed country. When comparing the price of the cholesterol reducing drug Lipitor, a single prescription in the United States can cost between $272.00 to $308.00, while in Canada, the same drug can be purchased from between $159.00 to $199.00. The savings are substantial and, with Americans turning to the Internet in hopes of finding cheaper medication, the online pharmaceutical business is proving to be a lucrative one. For example, the online pharmacy Drugstore.com, Inc. made Internet Retailer’s Top 50 List of Retailing Web Sites for 2004. Drugstore.com, Inc., is one of the online leading retailers in beauty and pharmacy items. The prescription drugstore’s Web site boasts that their prices are, on average, lower than those of the national drug chains, showing you the price you would pay elsewhere. Consumers are turning to online pharmacies for better prescription drug prices.

A number of state and local governments are even exploring the option of importing Canadian drugs. North Dakota may establish its own Web site with links to Canadian pharmacies that state officials have checked and consider to be safe drug suppliers. Howard Anderson, Jr., director of the North Dakota board that licenses pharmacists, said a North Dakota government Web site with links to Canadian pharmacies would be tantamount to encouraging people to break federal drug importation laws. However, North Dakota’s Governor John Hoevan and Minnesota’s Governor Tim Pawlenty recently discussed Minnesota’s Web site to help Minnesota residents buy prescription drugs from Canada. On January 30, 2004, Governor Pawlenty’s state-sponsored Web site was up and running, enabling Minnesotans to reduce their drug costs by ordering directly from Canada. Minnesota is the first state to implement this type of Web site, which potentially violates the FFDCA. Rhode Island’s Secretary of State also urged Rhode Island to join several cities and states that have plans to buy prescription drugs from Canada, despite a federal prohibition on importing them. The city of Springfield, Massachusetts, already imports Canadian drugs, along with New Hampshire and Illinois, which are among the group of states and municipalities developing various plans for purchasing drugs from Canada. Boston’s Mayor Thomas Menino is planning to allow the city's employees and retirees to buy drugs from Canada this year, despite a federal prohibition on importing prescription drugs. The FDA emphasizes the fact that purchasing drugs from Canada may be risky since federal officials cannot guarantee the imported drug’s safety and/or potency.

Conclusion
Current United States law and DEA policies appear to prohibit the importation of pharmaceuticals from foreign drug companies, especially from unlicensed pharmacies. Nonetheless, as citizens yearn to take advantage of the substantial savings and convenience associated with purchasing their prescription drugs online, the popularity of these businesses is due to increase. Lobbyists for consumers will continue in their effort to encourage the government to take a more progressive approach to this issue, instead of adopting a policy of absolute prohibition, which will continue to enjoy well-funded support from the pharmaceutical industry. While legitimate health and consumer safety issues are implicated by purchasing drugs online without a face-to-face doctor’s visit, the development of a global market for pharmaceuticals, along with all other consumer items, cannot be ignored. Advertisers and affiliates based in the United States bear some risk of criminal and/or civil liability resulting from the advertising of controlled substances coming from another country. They must rely upon the constitutional protections afforded commercial speech in the event the Department of Justice, or state law enforcement authorities, takes an aggressive approach to criminal law enforcement based on pure advertising activity. As with many such things, the devil is in the details, and the terms of the advertising/affiliate agreement between the drug distributor and the promoter may drastically affect the liability analysis. Ultimately, if there is a market for the products, as there clearly is for online pharmaceuticals, some companies will be willing to weather the storm and satisfy the demand.

Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all facets of Internet marketing and media. The firm handles First Amendment cases nationwide, and has been involved in much of the significant Free Speech litigation before the United States Supreme Court over the last 40 years. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com, www.PillLaws.com or AOL Screen Name: “Webattorney.”

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